Facebook’s IPO Priced Right

by Christopher Paul on May 18, 2012

Looks like Facebook had a good day. On its first day of trading as a public comapny, it hovered very close to its IPO price of $38 meaning it was valued properly. Mike Masnick from TechDirt explains:

“In case you’re unfamiliar with how IPOs work, basically what happens is the underwriters ”buy“ all the equity that’s going on the market from the company, and then put it on the open market. So, that IPO price shows exactly how much Facebook gets. All of the trading after that is between other entities. So, for example, with Facebook, it got $38 per share last night from the underwriters. If, today, the stock had been trading at (just for example’s sake) $80, it would have meant that Facebook effectively sold its shares for half price on what the market would bear. That would be more of a disaster, because it would suggest that Facebook missed out on a lot of money.”

All those dot com companies who’s stock skyrocketed on the first day got screwed. Of course, most of them tanked a few years later so I guess it all worked out.

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