After 1 month from the entrance of the biggest social network in the Stock Markets, we’re talking about Facebook of course, everybody knows that the stock price and, as a consequence, the value of the company dropped down after the first days, even if all the investors were expecting exactly the opposite..
What was the real reason about that? Was it so difficult to forecast for the big and educated business analysts in Wall Street?
The answer is simple: absolutely not. So why happened it? Maybe you have to know that behind the entrance of Facebook in the stock markets there were the 3 biggest financial companies/banks of the US: Morgan Stanley, Goldman Sachs and JpMorgan. A couple of weeks before Facebook valuation, the analysts of the 3 companies already showed that the valuation of 106 billion $ for a company that earns 4 billion $ an year was too much and that a stock price of 38 $ for a company that is new in the stock market was too high.. But they hid these analysis because they were sure to earn so much from this. How? People didn’t know that and bought the shares at that price (it reached also 45 $ the first day but it immediately went down by the 12% and so lots of people that bought at a price close to that one lost so much). Morgan Stanley earned 100 million $ the first week and so the others. It was also a perfect passage for the “short seller” (people who bet on the failure of the value of the company when it enters the market), so that’s why they didn’t change the valuation of the company, it was a perfect occasion to make so much money..
Why the stock price of the company was too high?
The reason is this one: in these years lots of people (especially young people) started using Facebook more with the mobile app than with the computer, so the company had to sell less ads and in this way less companies wanted to spend so much for the advertising on Facebook. It is a simple reason but normal investors couldn’t know this type of information, and so now the stcok price is lower than expectations
So in the end, the Facebook IPO looked more like a planned “failure” (with the complicity of the major US banks), but who was really affected were the normal investors that saved their money during these year of crisis and recession.. So maybe next time it’s better to wait a little bit more and to do better researches, because nobody will help you to earn money easily..