Facebook’ shares slumped by 11% after only two days of trading since the social network made its IPO last Friday. Right before the IPO many analysts forecast that Facebook shares’ price would soar 10% or even 50%. This optimistic forecast encouraged investors but they got it wrong.
Analysts say that the IPO’s organizers issued too many shares and set the initial price too high. Several days before the primary offer the demand was great which made organizers increase the stock by 25%.
However, a year ago, the guru of financial speculations Warren Buffet advised investors to be more careful with their investments in social networks warning them that most of these networks would be overvalued. Indeed it is difficult to objectively evaluate social networks, whose material assets include only dozens or a hundred servers.
In fact, prices of social networks and internet projects are influenced by the expectations of the investors who have become trilled with million audiences of these networks. Facebook has an audience of more than 900 million users. The audience is the main asset of any social network. In addition to it there is unconscious belief that any company, which changes peoples’ lives (and Facebook is regarded as one of these companies) must be expensive.
The matter is that so far nobody knows an effective way of making really big profits off of such a colossal audience. Like any other internet project, Facebook makes money off advertisements and payments for online games but so far these are not really big figures.
Optimists hope that in the future effective tools will emerge to profit from social networks and this hope makes them invest money. The social networks’ case reminds of the collapse of dotcoms, numerous internet companies which were overestimated in the early 2000s.
Back then, the investors also overestimated the prospects of the internet economy forgetting that the Internet commerce is only a tool for doing business (though quite an efficient one) but this is not an independent business process which is able to generate profits. Hopes that any investment in dot com would be beneficial played a low-down trick on investors. It looks like investors’ belief in the might and boundless prospects of social networks can play a low down trick on them again.
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Investors Hopes Ruined as Facebook Shares Drop
By News Division in Livingvox · May 22, 2012 · No comments
Tags: business, Commentary, facebook, investments, IPO, trade, World
Facebook’ shares slumped by 11% after only two days of trading since the social network made its IPO last Friday. Right before the IPO many analysts forecast that Facebook shares’ price would soar 10% or even 50%. This optimistic forecast encouraged investors but they got it wrong.
Analysts say that the IPO’s organizers issued too many shares and set the initial price too high. Several days before the primary offer the demand was great which made organizers increase the stock by 25%.
However, a year ago, the guru of financial speculations Warren Buffet advised investors to be more careful with their investments in social networks warning them that most of these networks would be overvalued. Indeed it is difficult to objectively evaluate social networks, whose material assets include only dozens or a hundred servers.
In fact, prices of social networks and internet projects are influenced by the expectations of the investors who have become trilled with million audiences of these networks. Facebook has an audience of more than 900 million users. The audience is the main asset of any social network. In addition to it there is unconscious belief that any company, which changes peoples’ lives (and Facebook is regarded as one of these companies) must be expensive.
The matter is that so far nobody knows an effective way of making really big profits off of such a colossal audience. Like any other internet project, Facebook makes money off advertisements and payments for online games but so far these are not really big figures.
Optimists hope that in the future effective tools will emerge to profit from social networks and this hope makes them invest money. The social networks’ case reminds of the collapse of dotcoms, numerous internet companies which were overestimated in the early 2000s.
Back then, the investors also overestimated the prospects of the internet economy forgetting that the Internet commerce is only a tool for doing business (though quite an efficient one) but this is not an independent business process which is able to generate profits. Hopes that any investment in dot com would be beneficial played a low-down trick on investors. It looks like investors’ belief in the might and boundless prospects of social networks can play a low down trick on them again.
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