With Facebook’s Initial Public Offering (IPO) come and gone, we have to ask ourselves, what did we learn? The dream of any investor is to buy into the next Google for a few dollars a share and see the small company become a behemoth, making plenty of profit along the way. This is of course the exception and not the norm. It’s been a few months since the IPO and now we even have reports on how profitable the company is. What does this all mean?
Facebook is a large company, no doubt about that. Its impression on the early 2000s has been clear and it has even become a verb to some: “I am going to Facebook
this when I get home.” Trotting would not be an acceptable pace for a stock this hot, everyone was expecting it to fly off the starting line and never look back. Adding an ad-based revenue that is not overpowering allows Facebook to be very profitable while still being enjoyed by the customers. This was a great move by genius mastermind Mark Zuckerberg. With more than 800 million active users worldwide logging in to post and see what their friends are up to, Facebook has a huge audience. That is nearly a eighth of the world population. Being able to reach this many people is a far-fetched dream for some companies, yet Facebook has achieved it.
We start wondering why, then, the stock price had a slight increase the first day trading and has lost more than 40% of its value since. The over-hyped stock was due to take a tumble, as most hot stocks do after their IPO. Those who got a really good price on the shares to begin were ready to make a profit and couldn’t wait for the bell to ring in order to sell. This leaves the common traders without much hope to make a killing right away. As stated, striking it big is not the norm and there are plenty of other companies that show the same pattern. Look at Groupon, Pandora and Zynga, they were promising and strong companies whose price buckled just as well. That is not to say they are bad companies, just initially overpriced. All hope is not lost though. The company is still very strong and the lack of negative media is very encouraging. The bulls have exited the stock, leaving only long term owners, and its current price of about $19/share might be a good entry point for speculators who want to buy and hold.
Any wise investor will tell you to take certain steps before going in head first into a stock. Look at the way they do business and ask yourself if you would be comfortable running this company. Diversify your portfolio whenever possible. Ask yourself, do they have a good product able to make a profit? Can I afford to lose my investment? Answer yes to these and Jason Hartman would gladly support your decision to and see what the future holds. (Top image: Flickr | Thos003)
The Young Wealth Team