Freetrade - After the debut of the company on stock markets, the most popular social network in the world Facebook officially had a market value of 104 billion US dollars, after having determined the price of 38 dollars per share for its initial public offering (IPO).
This price graded Facebook among the top 25 publicly traded companies and made it more expensive than the combined market value of Starbucks and Hewlett-Packard. Experts expected that the share price may increase up to 30% to the close of the trade last Friday, despite some uncertainties about the potential of the company to monetize its 900 million customer base. The average forecast of analysts from Morningstar was that the price of the shares will reach 50 dollars on the first day of trade.
“Our market on the percentage change in the price of Facebook shares after the first day’s trading has seen appetite from clients in buying on the price as the big day approaches, moving the spread up from 30-35 percent earlier in the week to 35-40 percent,” Spreadex spokesman Andy MacKenzie said. He also added that among other tech IPOs, LinkedIn rose 109 percent the first day, Groupon climbed 31 percent, while the social game maker Zygna lost ground on its first day.
The sale of 421.2 million shares at $38 per share raised $18.4 billion, one of the largest on record, thus making the IPO one of the largest in the history of US stock markets.
“Many people buy shares of Facebook not only for the investment, but because this makes them feel they posses part of the history,” commented Mona DeFrawi, Executive Director of the consulting company Equidity. The strong demand for the shares of Facebook surprised most analysts because of growing criticism toward the mobile and advertising strategy of the social network. Last week the automobile giant General Motors even withdrew from paid advertising platform of Facebook.
After opening at $38 dollars on the IPO’s first day, the price of Facebook shares reached $45 and persistently declined to $27,10 yesterday. The high market value of the company unveiled doubts whether the social network will be able to develop sufficiently new and effective advertising methods and other sources of revenues to meet the high profitability expectations of investors.
“This market assessment contains too much optimism. The company must be presented really well in the future to prevent the fall of shares driven by the high anticipations,” noted Jay Ritter, Professor of finance at the University of Florida. So in other words, Facebook would need staggeringly high revenues (or a consistently remarkable profitability) for its shares to behave as well as Google shares did in those first few years out of the gate.