Friday, May 18, 2012

Facebook's Not-so-big Day

Today was a big day for Facebook. The social networking behemoth's IPO began this morning with the cost of one share at $38. It is believed that over 400 million shares were up for grabs. In just a few hours, the cost of one share had not risen: it had actually gone down. Underwriters soon stepped in to guarantee that the share price would not drop any more. By the end of the trading day, a share of Facebook stock was selling for around $38. A few analysts have concluded that Monday would be a good day to try to sell Facebook stock.

Facebook is now a public corporation. According to its stockholders, it needs to show a profit. Facebook, according to its stockholders, is now worth over $100 billion. Facebook, according to market analysts, is worth quite a bit less than that. And that is why Facebook stock will be purchased for less than $38 a share come Monday.

What can be learned from this?

Below is a breakdown of how Amazon ranks ebooks for the Kindle based on how many are purchased per day.
Bestsellers Overall Rank 40,000 to 100,000 – selling close to 1 book a day. (per kindleboards)
Bestsellers Overall Rank 8,500 to 40,000 – selling 1 to 10 books a day.
Bestsellers Overall Rank 3,000 to 8,500 – selling 10 to 30 books a day.
Bestsellers Overall Rank 2,000 to 3,000 – selling 30 to 55 books a day.
Bestsellers Overall Rank 1000 to 2,000 – selling 55 to 100 books a day.
Bestsellers Overall Rank 200 to 1000 – selling 100 to 350 books a day.
Bestsellers Overall Rank 80 to 200 – selling 350 to 550 books a day.
Bestsellers Rank 65 to 80 – selling 550 to 650 books a day.
Bestsellers Rank 20 to 65 – selling 650 to 1,100 books a day.
Bestseller Rank of 10 to 20 – selling 1,100 to 2,000 + books a day.
Bestseller Rank of 5 to 10 – selling 2,000 to 3,500 books a day.
Bestseller Rank of 1 to 5 – selling 3,500+ books a day.

Let's say that 5 ebook copies of Betrovia are purchased everyday. That would give Betrovia a ranking of 20000 or so. Is 5 books a day a lot? Yes, that would add up to over 150 ebooks purchased per month. And that would almost be enough for a mortgage payment here in Jefferson City. And that would be a good thing.

What if a system like Amazon's ranking system was used to rank corporations based on shares of their stock sold on a daily basis? Actually, there such a system is already in place. It's called "value."

If a share of Facebook stock was a "hot item," like any Amazon ebook that is ranked in the top 100, then that share would cost a whole bunch more than $38.

Some of the ebooks ranked in the top 100 are being sold for $.99 while others are being sold for much, much more (take the 50 Shades of Gray series set, for example). And why would someone pay even $9.99 for a digital ebook when a paperback or even hard-cover version is not that much more? "Value," again, is the answer.

While many people, including me, get lots of pleasure out of reading, liking, sharing and posting on Facebook, how many people "value" Facebook?

The share price come Monday evening will be the answer.

The value of a share of Facebook

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