The recent Facebook Inc. (FB) IPO didn't go quite as planned. The stock opened around $42 a share and quickly spiked to $45 before settling slightly above $38 for the first day of trading; the IPO was originally priced at $38 a share. Then on day 2 of trading, Facebook Inc. fell nearly 11% to $34.03. The IPO wasn't nearly as impressive as people thought it would be, and for the third largest IPO in market history, this was a dud. Is giving up on the company after 2 days on the market really a logical solution?
Many that bought shares at the $38 IPO level or higher are probably feeling a bit uneasy right now as the press hounds this company and claims that it has no chance for success; I say don't reach for the panic button just yet. Exiting now and taking a 10% hit in the portfolio is not the way to play this stock.
Remember back to when LinkedIn Corporation (LNKD) went public back in May, 2011? The stock popped on the initial day of trading, and then tanked the following week. Those that sold after the stock tanked lost out big-time, as the stock has now made an impressive recovery.
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Facebook Inc. has only traded for 2 days, and though the withdrawal of General Motors Company (GM) as an advertiser is scary to some, it's not a reason to head for the door quite yet. The automotive advertisements from General Motors made up only $10 million of Facebook Inc's. $3.7 billion revenue. On the other hand, the advertisement category on Facebook makes up 85% of it's total revenue so even though it's just one company dropping out, if more followed suit, Facebook Inc. could lose significant revenue.
Facebook Inc. may need to restructure the way it runs its advertisements if it wants to continue to be an attractive source for advertisers. The way the advertisements operate on Facebook is on a cost-per-click scale. Unlike how Google Inc. (GOOG) displays the ads (where they display ads similar to what your search requests are), Facebook Inc. runs ads while people are trying to be social and not necessarily in a buying mood. So if a person clicks on an ad, generally it is out of curiosity and not so much because the person was interested in that particular subject, like how Google Inc. operates.
Facebook Inc. has plenty of time to get their stock moving in the right direction. Before jumping ship and taking a loss, I suggest sitting back, waiting to hear more about the companies financials down the road, and to see what steps the young genius Mark Zuckerberg takes to get this company rolling in the right direction.
This is a strictly opinionated article, so please go with your gut, but remember not to trade with emotions. Look at this company and if you truly believe in it, and believe that in a year it will be at a higher price than when you bought into it, then stay in it. Just remember to stop and think it though before you hit that sell button.
Disclosure: I am long FB.