Since Facebook’s botched IPO on May 18, 2012 with a starting price of $38 it’s been a downhill ride since then. It’s now trading as of Friday July 27, 2012 close at $23.70 – that’s over a 35% decline in 3 1/2 months! Sure international concerns in Europe have not helped at all and other tech companies with recent IPO’s such as Groupon have also fared badly the past few months BUT Facebook’s offering price was plain and simply in the ‘bubble’ range.
With a PE ratio of over 100+ times historical earnings (the company’s profit for 2011 was $1 billion) initial investor’s fundamentals went out the window with all the hype of the biggest Tech IPO the US has ever seen. As the line from an Eminem song goes “..snap back to reality…” comes to mind and seems very appropriate in this situation. Bloomberg estimated the stock would need to sink approximately another 14% to match the average PE ratio for the Nasdaq Internet Index based on estimated earnings in the next 12 months.