On May 18, with great fanfare and even greater expectations, Facebook went public and sold shares to investors at a price of $38. On the first day of trading, the company managed to close mere cents above its offer price. Impressively for a firm in existence for only eight years, Facebook had a market capitalization of about $104 billion on trailing revenue of only $3.7 billion.
Only lofty investor expectations would explain paying $28 in market capitalization for every $1 of current sales — that's sales, not earnings. The next two trading days were not good for Facebook investors, with the stock falling to below $31 per share.
Although the overall market was up on Facebook's IPO date, Groupon Inc., Zynga Inc. and LinkedIn Corp. also suffered as investors simultaneously dumped shares of social media stocks.
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