Transfer Pricing Associates

Is Facebook fad history?

Posted on Thursday May 31, 2012

Since Facebook’s IPO on may 18th, the company has experienced some great set backs. From pending law suits due to lack of full financial disclosure, to a share price drop of roughly 23%, from $38 per share to $29.2 per share. The latter translates into a loss in value of $24 billion in the span of a week.

However, what could lead to such a disappointing performance?

Some analysts at the Wharton School of business claim that it can be linked to the difficulties faced when deciding on what actually to value in a company such as Facebook as there is not really a means of comparison. They have no model in place to really value the company and because of this, the valuations given were all based on subjective factors which were inflated by the hype that Facebook brought.

It seems skeptics were indeed correct, to think that it was just a fad and the true value would greatly disappoint the hyped up investors.

[Source: BizzBuzz, Edmond Journal “ Facebook is rapidly turning into facebust”.; Facebook quotes and financials]

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