Question

If an investor invested in Facebook stock and bought the shares on day of the IPO at the offer price

- Estimate the investor’s first day return. Give your comments on the first day return.

- Estimate the long-term performance of Facebook in the post-IPO period at the end of each financial year from the IPO date to 31 December 2014, that is, what is the investor’s holding period return since the day he/she bought the shares to the end of each financial year for the first three years after the IPO? Give your comments on the long-term performance of Facebook IPO

Answer 1

Total estimated first day earning of investors was $ 7 per share.

Prior to IPO, Facebook was private. As a private company, Facebook has a good growth with small number of shareholders including, family, friends and some professional investors.After realizing of being matured enough to go public, Facebook issued IPO. Facebook prior to IPO was having good growth repeatedly so valuation of per share was valued $34-$38 where ultimately underwriters set share price of IPO at $38. This price valued the company at $104 Billion. Facebook announced, it will sell 25% of shares. the first day trading shoot the IPO price to $45.

However long term investment was struggling. Even on struggling, shares made a new record for 460 million shares volume and made it third largest in US history raising $16 billion. later Facebook kept raising on modest speed, and later it shows a growth again after a big buy of whats app. Over all long-term Investment is also fruitful in Facebook