You can help save Facebook! Facebook stock (Nasdaq: FB) was priced for their IPO at $38 a share, giving it a market cap around $100 billion. Their Price to Earnings ratio (P/E) at that valuation was around 100 times. The P/E is the share price compared to its per-share earnings. At that price you could say that those buying Facebook stock are assuming it will eventually generate 100 times more revenue per share.
For example if current earnings are $1 per share it should generate $100 per share at some point in the future. Actually as an investor if you were buying at 100x P/E you are hoping someone will buy it at a higher price or higher P/E. To be fair here is the current P/E of Google (Nasdaq: GOOG): 17, and current Facebook is 70 at the time I am writing this post. Both have similar revenue streams for their sites, I realize they are not exactly the same but for sake of argument they are similar. Essentially advertising is how they generate income.
Save Facebook by Buying More Stuff!
So here is how you can keep the Facebook value and stock price from falling any further. When you see advertisements in Facebook try to remember about how often you click on an advertisement. Then try to remember how many times you buy something after clicking an ad. Now to keep the stock from falling further we need to keep their P/E (as of the writing of this post) at 70. So all you need to do is the following:
1. Click on Ads 70 Times More than You Do Now
2. Spend 70 Times More than You Do Now
Therefore if you click on an advertisement once every three days, you need to click on 70 ads every three days. If you have spent $50 after clicking an advertisement you need to now spend $3,500. Another way to look at it is that we bought our three boys one pair of shoes each, so now I just have to buy 207 more pairs of shoes. My boys are pretty excited as they just reminded me we bought a video game too, they are actually having a hard time finding 69 more PS3 video games that they like.
Now this is not entirely accurate as their share price may begin rising as soon as revenue ramps faster but you get the point that it is not surprising that their stock price has slipped.