In response to my recent article, ‘œFacebook IPO Is Nigh, Should You Buy,’ I have received a large number of emails asking about supply and demand in.
We will not know the numbers until the filing is made public, but here are my qualitative estimates. Facebook may sell 250 million shares at $35-40 apiece.
It is too early to know the demand for the shares precisely, but it’s not too difficult to make a reasonable estimate.
At The Arora Report, our estimate is that 3-6 million individuals will be clamoring to buy these shares. If 5 million individual investors want only 100 shares each, this amounts to a demand of 500 million shares.
Institutional investors will be more price sensitive than individual investors. The demand from institutional investors will be in the range of 500 million to one billion shares depending on the price.
The point is that a qualitative estimate of the demand is around one billion shares compared to the supply of about 250 million shares.
A lot will depend on how Facebook handles the road show. In a road show, the management travels around the country giving presentations to analysts and investors.
In any case, the demand is likely to be 400% times the supply.
As I have previously written, it’s a no brainer to back up the truck and buy as many shares of Facebook as you can get in the IPO. For the long-term, growth rates, price earnings ratios and other fundamental metrics will matter, but in the short-term, it is all about supply and demand….Read more at Forbes
