Facebook was issued to the public at $38 per share, represents a PE ratio of 100 times. It went up to $42 (10% gain) but closed at near the IPO price. The following trading day, it dropped to $34 (drop of 10%) and opened lower on the third day. Read tis report.
What is happening to the price of Facebook?
At 100 X of earnings, Facebook was clearly over-priced. Apple Computers trade at only 10 X of earnings. On this benchmark, Facebook should be $4 and not $38!
Why did Facebook get issued at such a high price? It is the work of the investment bankers and underwriters. They set a high price and tried to prop up the share at that price. They could not prop up the shares for long, so they started to unload them. Watch the share come down to $20 (my guess)!
What is happening to the price of Facebook?
At 100 X of earnings, Facebook was clearly over-priced. Apple Computers trade at only 10 X of earnings. On this benchmark, Facebook should be $4 and not $38!
Why did Facebook get issued at such a high price? It is the work of the investment bankers and underwriters. They set a high price and tried to prop up the share at that price. They could not prop up the shares for long, so they started to unload them. Watch the share come down to $20 (my guess)!
Nice read.Greenlet
ReplyDeleteThe only way to save Facebook from a hype is to go into the highly lucrative business of internet gambling, otherwise it would lose its value when another better hype site come on board, or, being a social network site for the young, its founders become old and lose its youth status.
ReplyDeletePerhaps TKL's prediction FB's price would drop to US20 is possible, around the same prediction as one recent survey showed at US22.
Price will come down. And I'm not even reading the numbers.
ReplyDeleteIt's just that their business model for ads is a bit flawed. There's no context for ads to appear as compared to Google.