Facebook IPO May 2012

Facebook, the world’s leading social networking platform, has recently announced a hike in the price range for its Initial Public Offering (IPO) from $28 to $35 per share to $34 to $38. This new move by the social networking giant has triggered a frenzy of anticipation among individual and professional investors of Wall Street as well as Main Street, both of whom have shown keen interest in investing in the coveted stock. It also pushes Facebook’s previous valuation of between $77 and $96 billion to a staggering $93 billion to $104 billion as per the revised price range.

The announcement has conveyed a lot of promise and has attracted favorable investor sentiment among individuals as well as professionals. This is primarily because of the fact that sophisticated investors possessing abundant financial resources have traditionally traded limited Facebook shares in the secondary markets. However, the initial public offering promises to transform Facebook into a true public limited company, the ownership of which can be claimed by any leading shareholder.

A majority of small-time investors have shown eagerness to buy the stock at its current issue price in the hope that the share value will surge as is the customary pattern for IPO’s on the first day. However, leading analysts have observed how internet IPO’s have registered mixed stories of success as well as failure; a fact that has inspired mixed sentiment in potential investors.

As a result, leading economists and financial gurus have expressed their misgivings and skepticism over the unbelievable IPO; most of them strongly believe that it is overvalued. Such genuine concerns are shared by many investors too, a majority of whom have noted how Facebook has dismissed repeated calls to prove that its $3.7 billion worth of revenues and $1 in profits through the previous financial year actually deserve such a hefty valuation.

This development comes only a month after Facebook conceded that its profits and revenue margins for the opening quarter of the current financial year were dismal compared to the closing quarter of the previous year. Although an official statement has not been extricated on the matter yet, Facebook attributes the dwindling revenue and profit margins to a shift in ‘seasonal advertising trends’. This shroud of skepticism and uncertainty that covers the whole ‘win-win’ scenario painted by promoters is largely what has driven away many investors.

However, a majority of investors have expressed a more optimistic and upbeat attitude, given the fact that Facebook has recorded staggering growth in terms of global market share and revenues since its inception eight years ago. If Facebook’s user growth continues, and there’s no reason to think that it won’t, Facebook will probably have 2-3 billion users in a few years.

Amidst favorable investor sentiment and a positive future outlook, Facebook continues to grow with remarkable revenue and profit figures of $4 billion and $1 billion respectively. Given the promising scenario, Facebook’s initial public offering has already become the most coveted and eagerly in history. Only time will tell whether the decision is the right one or not.