According to its May 15th amended registration statement, Facebook sold just over 388 million shares for about $38 per share prior to its initial public offering. This has raised nearly $15 billion for the company founders, early-stage investors and others who managed to get their hands on some shares while the company was still officially private. However, since it went public Facebook has endured a substantial drop in share price from its IPO.

Below are some still relevant investment considerations now that the stock has officially gone public, despite the reactionary movements that occurred in the market earlier this week.

SEE: How To Choose The Best Stock Valuation Method

Facebook's user base has continued to skyrocket and now exceeds 901 million users, which it considers "monthly active users." This activity leads to 3.2 billion likes and comments each day, 300 million daily photo uploads and 125 billion friendships. This should be more than enough to cover the more than 7 billion humans currently on earth, which falls in line with Facebook's stated objective, or "social mission," "to make the world more open and connected." It has already been one of the most successful entities ever to do so, which contributed to the hype prior to last Friday. Whether or not this translates to long-term growth and revenue generation, time can only tell.

Finances and Platform
In terms of the financial equation, sales growth has also been meteoric. Facebook was only officially founded in July 2004 and has seen revenue shoot up from $0 to $3.7 billion for all of 2011. This is up nearly five-fold from 2009 when revenue stood at $777 million. Nearly all sales stem from advertising, as well as an online market that lets users purchase "digital goods" such as games and online services.

SEE: 3 Ways Companies Profit From Virtual Goods

Facebook has spent heavily to develop its digital platform and grow subscribers, but has been solidly profitable for the past three years. Last year, it reported an even $1 billion in net income, though only $668 million was available to the common stockholders. However, despite these numbers an analyst for the underwriter Morgan Stanley cut revenue forecasts prior to the IPO, which resulted in some downward movement in its share price among institutional investors. Whether or not this estimate holds water, will depend on the social media giant's first quarterly report as a public company.

Market Cap
The market capitalization is currently around $70 billion, a drop from last week's $81 billion; 2013 earnings per share estimates are currently within the neighborhood of 40 cents, based on the current share count. This places the price-to-earnings ratio in even loftier territory at around 100. Some investors remain very optimistic on Facebook's future, hoping it will turn out to be the next Google, which currently has a market cap of close to $200 billion and revenue close to $40 billion. Google has grown sales and earnings more than 80% annually for a decade now, though growth has slowed a bit in recent years.

Of course, other investors like to point out that MySpace, a social networking firm set up several years ago with similar ambitions to Facebook, also had a quite a bit of hype in its earlier days. Media giant News Corp. bought my space for $580 million back in 2005, but ended up selling it for $35 million last June to Specific Media. MySpace had seen its user count dwindle to 34.9 million at the time of sale, down by roughly half from the prior year.

SEE: Why Facebook Needs More Cash and How To Use The P/E Ratio And PEG To Tell A Stock's Future

The Bottom Line
The half-a-billion-dollar loss on the part of News Corp would be child's play, should Facebook's business model follow a similar downward trajectory. This seems highly unlikely, but so does its ability to grow sales rapidly enough to justify its lofty market capitalization. Most individuals would probably be better served taking advantage of Facebook's power to connect the world's population, but avoiding the stock, for the time being. At this point in time, Google looks to have the much more appealing, and sustainable, business model.

Related Articles
  1. Investing Basics

    The Biggest IPO Flops

    Even with the uncertainties of IPOs, companies will keep issuing them in efforts to grow their enterprises, and some will end in disaster.
  2. Investing

    Top Investment Banks In The Energy Industry

    Many global Investment banks are highly involved in the energy industry, but there are also some smaller banks and boutiques that are strong players.
  3. Stock Analysis

    Is the Stock Market Crashing? 5 Signs to Consider

    Learn about some signs of a potential stock market crash including a high level of margin debt, lots of IPOs, M&A activity and technical factors.
  4. Professionals

    Why Near-Retirees Shouldn't Sweat the Volatility

    With the stock market bumpy, some folks nearing retirement might be nervous. Here's how to create some wiggle room for your portfolio.
  5. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  6. Professionals

    Fund and ETF Strategies for Volatile Markets

    Looking for short-term fixes in reaction to market volatility? Here are a few strategies — and their downsides.
  7. Professionals

    Career Advice: Investment Banking Vs. Corporate Finance

    Read an in-depth review and comparison of a career in investment banking and a career in corporate finance, with advice about which one to choose.
  8. Investing

    Middle Market Investment Banks

    We take a close look at investment banks working with middle market companies.
  9. Fundamental Analysis

    Top Reasons IPO Valuations Miss The Mark

    The costly services of investment banks don’t necessarily guarantee accuracy in IPO pricing.
  10. Investing

    Top Investment Banks In The Real Estate Industry

    The real estate market relies on capital provided by large global investment banks.
  1. What happens if a software glitch fails to execute the strike price I set?

    If you've ever suffered the frustrating experience of having an order not filled or had a strike price fail to execute because ... Read Full Answer >>
  2. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  3. How does investment banking differ from commercial banking?

    Investment banking and commercial banking are two primary segments of the banking industry. Investment banks facilitate the ... Read Full Answer >>
  4. What kind of assets can be traded on a secondary market?

    Virtually all types of financial assets and investing instruments are traded on secondary markets, including stocks, bonds, ... Read Full Answer >>
  5. Why would a company decide to utilize H-shares over A-shares in its IPO?

    A company would decide to utilize H shares over A shares in its initial public offering (IPO) if that company believes it ... Read Full Answer >>
  6. How do I place a buy limit order if I want to buy a stock during an initial public ...

    During an initial public offering, or IPO, a trader may place a buy limit order by choosing "Buy" and "Limit" in the order ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Ex Works (EXW)

    An international trade term requiring the seller to make goods ready for pickup at his or her own place of business. All ...
  2. Letter of Intent - LOI

    A document outlining the terms of an agreement before it is finalized. LOIs are usually not legally binding in their entirety. ...
  3. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  4. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  5. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  6. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!