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Monday, August 20, 2012

Facebook:All Hype

One of the much hyped IPOs of recent times was that of the social media leader Facebook. In fact, it was the third biggest IPO (Initial Public Offering) in US. It was touted to be the company which could do nothing wrong. It had and still has a strong brand and fan following. And this prompted investment bankers to value it at astronomical valuations. But since its listing, things have changed. Investors have been hit by the hard realization that all the hype had little basis to support it. The underlying fundamentals of Facebook just did not match the valuations that its stock had been priced at. They have now come to wonder how the company would monetize itself and generate strong earnings. Unfortunately, this is something they should have done before they invested in it not after. The rude shock for these investors is visible in the drastic fall in Facebook's share prices which have been only heading south since listing as shown in today's chart. With nearly 2 bn shares becoming eligible for trading over the next 10 months, there would be plenty of investors looking to exit from this unprofitable investment. And this would hurt share prices even further.

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