Thursday, May 17, 2012

Facebook increases shares

Facebook Increases Share Price and Number of Shares

On 15th May, Facebook announced that it would increase its share price from $28-$35 to $34-$38 due to strong demand. A day later, on16th May, Facebbok announced that it will now sell 25% more shares. The company is currently spending thousands on a massive media campaign to promote its IPO, and it seems to be working.
The earlier announcement of increase in share prices had increased the company's potential worth to more than $100bn, bigger than other corporate giants such as Ford and Disney. It has 900 million global users and has reported a profit of $1bn in 2011.

The current increase in the number of shares means that it will now sell 421 million shares which can raise about  $18bn. 

Despite the billion in profits, some investors have serious doubts about the company's ability to sustain the returns in the long run. The simple fact is that Facebook was able to make just 1% in profits compared to its current market value of $100bn. Others have also expressed  doubts over Facebook's ability to increase its revenues when its primary utility is providing social networking updates. The business also reported a decrease in revenue for the previous quarter. Furthermore, General Motors decision to drop advertising on Facebook has also put a question mark over Facebook's advertising power.
The company has now implemented a new growth strategy and wishes to tap into the market of mobile devices and tablet computers. Facebook currently plans to purchase Instagram, a mobile photo sharing app for $1bn. 

IPO Predictions

Analysts are expecting the share prices to rise even further on the first day, which might continue for a couple of more day, then a slight dip, a dip further until the market price mechanisms automatically adjusts the price in a few months. 

If things go extremely well for Facebook, then it can sell all the shares at the highest price of $38 per share which will earn it a bronze medal in U.S. IPO history, behind massive successes of Visa and GM. Furthermore, it can also introduce 60 million excess shares into the market. 

All current Facebook shareholders have "B" shares which entitle them to 10 votes per share. The new shareholders will have "A" shares which would entitle them to just 1 vote per share.

Your comments and feedback are always appreciated.
Sarfaraz A.K.
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