Trading in Facebook’s blockbuster IPO has opened to an enthusiastic audience, with the Nasdaq trading at a record high of more than $1,000 a share. Facebook’s share price also shot up above $45 before falling back to around $38, giving Facebook a market capitalization of $90 billion, well below the $100 billion at which the stock had traded.
Facebook’s share price has returned to the levels last seen in early May, a sign of how bullish investors “expectations were. Facebook’s share price had a big boost in February 2014 when the company announced it was buying WhatsApp. After going public with a market value of $140 billion and reaching $55.12 per share, it went green again in May 2014.
By the time the deal was completed, Facebook’s share price had risen so much that the final value of the deal was $21 billion. In late 2011, the Wall Street Journal reported that Facebook was expected to debut to consumers when Google went public in 2004. Facebook closed a week after its IPO and was valued at $140 billion, compared with its June 2010 IPO, when the stock price was $70 billion. The collapse of the Google Inc. (NASDAQ: GOOG) and Apple Inc (NYSE: AAPL) The stock has cooled the Silicon Valley IPO bandwagon.
Facebook is a relatively volatile stock, so investors should come to terms with the ups and downs of the stock price. Facebook shares briefly fell below their peak, but investors’ worries appear to have evaporated in recent months.
If the stock gains of the past few days are correct, I would do well to avoid short-term bets on most stocks, and FB stocks seem to be the exception to this general observation. If the shares are gaining in recent days, it is best to avoid short-term bets on most stocks and Facebook shares, which seem to be exceptions to this general observation.
In the months after the IPO, Facebook’s market value was halved, owing to declining revenue and massive insider sales that made the company’s stock a target for a large number of hedge funds and other investors. Facebook shares suffered a slight drop in late 2016 when news surfaced that Facebook may have misled companies with false advertising estimates.
But the social media giant has weathered the storm, with FB shares up nearly 38 per cent this year amid a broader stock market recovery. This potential makes betting against FB’s stock dangerous, especially as it faces a long antitrust battle. It could go better, even if the ride may be bumpy, but it’s worth the risk.
Find out more about Facebook’s earnings, earnings outlook, share price, dividend, market cap and more in our Facebook Stock Report.
Facebook is a growth industry, and while the company wants to expand rapidly and generate ever-increasing revenues and profits, its profits can be reinvested in the company to fuel its growth. It is a well-established and growing company that generates a ton of cash flow, so there is no reason why it cannot fit into the long-term growth plans of the US economy. WhatsApp, Facebook’s data store, has a huge influence on the world’s largest social networking platform. Facebook is doing well in terms of revenue, profit and market capitalization, as well as market share, but WhatsApp represents a huge opportunity.
If you are looking for a high-growth company to invest in, or a social media platform to admire, buying Facebook shares seems attractive. Facebook shares may not be a source of passive income, at least for now, but if you look at the long-term potential to invest in high-growth companies and admire social media, buying them may seem attractive. Facebook’s stock valuation is going to be incredibly difficult, so you have to look at all these indicators from a different perspective than any other stock on the stock market.
But you can also value Facebook’s short-term interest in shares that are not held by insiders or long-term major shareholders, also known as floats. One share is equal to one vote, including the shares of the Company’s stock options and short positions, as well as the shares of the common stock.
If FB’s stock moves 5% in five trading days, that would mean an average of 3.2%, with an overyield of 1.7% compared to the S & P500. If it had moved 5.0% on 5 trading days, it would have moved above 2.5%. If it had moved at an annual rate of 4.1%, implying a return on surplus of 0.8% or a return on surplus of 7.6% (compared to the S & P 500).
That’s not to say that Facebook was a bad investment, since it went public at $38 a share and now trades at about $140. Indeed, the company’s share price is on the verge of $170 per share, giving it a market value of nearly $500 billion.