Why Facebook receives conflicting views on its IPO performance? – Part 2

Thursday, May 17th, 2012 5:47:11 by

Considering all these factors the confliction in reports on Facebook’s fate in stock market holds truth to itself. The company’s sole mode of income is advertisement to date which has churned some $4 Billion for the network last year. Where this much amount is no joke for a company of any magnitude, the stock price now set in the range of $34 to $38 a share by Facebook on Wednesday is overpriced.

The company might be getting ahead of itself in terms of base price of shares. In comparison to the likes of Google, the price is more than what it earns on average every year. At $35 a share, Facebook would be valued at 70 times its projected 2012 earnings of 50 cents a share, and 18 times its estimated revenue of $5 billion. By comparison, Google trades at $610 a share, but trades at less than 15 times its 2012 profit estimate and six times its revenue.

However, that is besides the point as the company has registered the range and Security and Exchange Commission has approved of it. The other two factors in the equation are the mode of revenue and business sustainability.

In terms of revenues, advertisements have gotten the company in the tune of $4 Billion last year which is promising. What investors want to ask is; whether marketing on Facebook is reliable or not? Is it going to last for a long time or not? Is Facebook pondering on other sources of income in the near future?

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