Posted on 17 May 2012.
The Facebook Initial Public Offering (IPO) took place during the week of May 18, 2012. The Facebook stock price has been set for investors that will be offered shares during the Facebook IPO at $38 per share. The final Facebook stock price for the Facebook IPO will be determined by investor demand for Facebook IPO shares.
Facebook’s stock will trade under the symbol “FB” on the NASDAQ stock exchange. Listing on the NASDAQ stock exchange will put FB in the company of other technology giants.
Nobody expects the Facebook stock price to stay at the final Facebook stock price set during the Facebook IPO. Once Facebook’s stock is publicly traded, and everyone can buy Facebook’s stock, the demand for Facebook shares is likely to cause a sizable gap open higher for the Facebook stock price, with perhaps a run even higher from the elevated opening price, as buy orders pour in for Facebook stock. How high Facebook’s stock runs before plateauing is difficult to assess given the high demand for the Facebook share offering.
Up to 421.2 shares of Facebook’s Class A common stock will be sold during the Facebook IPO at $38 per share, which will give Facebook an IPO valuation of $104 billion. Facebook shares will be sold by the company and by company insiders and early investors. After a normal IPO, the overall valuation of a company, based on forward revenue and profit guidance, is a good way to gauge how high the stock can initially trade once it is publicly traded. However, since the Facebook IPO is the biggest most highly anticipated IPO in years, and will undoubtedly garner enormous buying interest from the general investing public once the shares are publicly traded, using traditional valuation methods to predict the top range of the Facebook stock price after the IPO may prove to be unreliable. As has been the case a number of times over the years, technology stocks often trade at lofty valuations once the shares are available to the investing public, as investors buy shares in anticipation that company growth will catch up to the sky high valuation.
If the Facebook stock price gaps up to the $50 per share level, Facebook will have a valuation of approximately $137 billion. While this may give some investors pause, it is likely that money will pour in to buy Facebook shares until everyone who wants to own them has Facebook shares. The Facebook stock price will likely be driven more by raw supply and demand dynamics than valuation metrics. It is possible that Facebook stock price could quickly run up to $80 to $100 per share within a few days of the IPO, regardless of the incredibly high valuation that such share prices will give Facebook. Stocks that trade after highly anticipated IPOs, such as Facebook, often take on a life of their own, and where the Facebook stock price ultimately levels off after the IPO will be determined by investor demand for Facebook shares after the IPO.
Investors should take notice that at Facebook Stock Price of $100 per share, Facebook will have a valuation in the neighborhood of $274 billion, which would give Facebook a price to sales ratio that is over 60. This is incredibly high when compared to the price to sales ratio that other companies trade at. By comparison, Google trades at a price to sales ratio that is approximately 5, based on 2011 sales. The Facebook Stock Price may get way ahead of traditional valuation metrics.
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