The Affect of Facebook on the Stock Exchange

Facebook is a very greedy company. The initial public offering or IPO for Facebook was a joke to them because they use it to gain money their personal use, pocketing it. The greed shown is a whole new way of running a company. They made the

Facebook is one of the top social media platforms with more than 1.23 billion active users worldwide. 62% of the 1.23 billion users log in on a daily basis making it the best medium to reach for new customers. Today, businesses both big and small use Facebook as an advertising source to help their brand expand.

As it is showed in Exhibit 3, Facebook’s estimated value/share is $32.44 using Discounted Cash Flow analysis. The price from the price talk is $38, which was raised from around $28 to $35 to $34 to $38 per share because of the overwhelming demand from investors. And the price talk is 17% higher than the intrinsic value.

The downturn of the economy was only able to affect negatively the stock. It went below its 50-day moving average for a little period before bulls rushed in. Facebook has showed since in entrance in the stock market an increasing of its stock price in general. Whatever the state of the market, Facebook can lose a little bit of its value but rapidly it will return to its pace. “Despite its giant footprint in the social media business, the company is growing like a startup” (Pan Jing, 2016). Facebook has also taken a step further in the future. It could be one of the first company to enter a multibillion-dollar industry. In effect, they are investing in the virtual reality (VR), one of the hottest field of tech today. According to Goldman Sachs, “Virtual Reality Could Become an $80 Billion Industry” (CNBC, 2016). In effect, their research predicts that in less than 10 years, the VR/AR industry could pull in $45.0 billion in hardware revenue and $35.0 billion in software revenue. Facebook has well anticipated this event by acquiring in the past Oculus, a firm specialized in virtual reality. It positioned itself among other big names in the market such Alphabet, Microsoft and Samsung that have already launched some products. For

(2) According to the case, proceeds from the offering will be used for working capital and other general corporate purposes. Facebook didn’t say more about the use of proceeds in details.

Big ad buyers and marketers are upset with Facebook Inc. after learning the tech giant vastly overestimated average viewing time for video ads on its platform for two years, and based on this fabricated data increased pricing that both big and small ad buyers had to pay,

Facebook has a high valuation of $75-100 billion which is difficult to justify. After the first quarter, the company failed to produce financials which caused stock prices to plummet. This is not good in terms of attracting new investors. In addition, customers often complain of bugs and problems when interacting online

(Attention Getter) What kind of company would Facebook, one of the most successful companies in recent history, spend one billion dollars to buy (Stern)? What company with fewer than twenty employees could warrant such a huge investment by one of the world's most visible companies?

Anmuth noted Facebook 's engagement in mobile Internet time was strong at about 22% while engagement via desktop reached 18% in September. The analyst expects upside potential of its ad revenue in the second half of the year from its newsfeed, video and ad load acceleration on Instagram. Anmuth assigned Facebook 's stock with a price target of $118. Facebook shares rose 1.3% to $97.20 for a year-to-date gain of 25%. Facebook is scheduled to release third-quarter earnings on Nov. 4.

LinkedIn, an online networking company had its initial IPO valued at a range of $32 to $35 a share. Given its gained interest by investors, they start to dissect its three distinctive revenue streams; advertising, tools for recruiters, and a premium subscription. Being the only social media company to go public at that time, its initial week, investors invested heavily in its opening day. The price range for the day went from an $83 opening price, to a peak of about $123 during late morning trading and finally saw it close at around $94.

Anyone could place a bid (both quantity and price) to purchase stock, with the final clearing prices determined by the market at the end of the day. Once a minimum clearing price was set by the market, investors who bid above that price were awarded shares on a pro rata basis. This type of auction removed a layer of investment banks that traditionally underwrote the IPO process by setting the price, allocation, and marketing for their clients. Traditional IPOs utilized the underwriting bank as the central controller of the market (price and allocation) and as the marketer of the private organization to the potential investors. Google’s Dutch-auction process allowed a greater range of investors to bid (and win) initial shares. While smaller companies had infrequently held this type of public offering, Google’s auction was unprecedented in size.7 August 19, 2004, marked the initial public offering of GOOG on NASDAQ. In addition, the public-offering statement was “part financial document, part populist manifesto.”8 In April 2004, Brin and Page wrote a founders’ letter that was included in the documents for Google’s initial public stock offering. Brin and Page stated, “Don’t be evil. We believe strongly that in the long term, we will be better served—as shareholders and in all other ways—by a company that does good

The investors might have different trading strategies for small stocks and large stocks. The investor psychology have led to heterogeneity in investors’ beliefs might exhibit behavioral biases, which could result in irrational trading decision-making.

Facebook noted in its IPO prospectus that, as of the most recent quarter, it garners $1.21 average revenue per user (ARPU) globally. In the U.S. and Canada, the company has an ARPU of $2.86. For 2011, Facebook reported earnings of $1 billion on revenues of $3.7 billion. For the first quarter of 2012, its earnings were $205 million on revenues of $1.06 billion.

Casual traders are known not to be selective when entering trades, showcasing impatience. They also have a track record of letting emotion, fear, and greed takeover, diverting away from what otherwise might be a solid trading strategy. Casual traders can certainly turn a profit – in fact, many do – but letting the heart rule over the head, along with always looking for the next “quick fix” position in the market, usually hampers performance.

Despite of the fact that some customers ‘hoping to flip the free Facebook shares immediately after they start trading on Friday are out of luck’, 8 Securities’ marketing promotion turned to be a win-win situation after all. Its customer received free shares as extra value on top of using new technology for trading activities, while 8 Securities differentiated itself from its rival by delivering the promotion messages directly to its specific target customers without huge spending on advertisement.