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+--- Thread: Facebook's stock only dropped around 20%, while its market cap. dropped by 35%! Why is this? (/thread-13983.html)
Facebook's stock only dropped around 20%, while its market cap. dropped by 35%! Why is this? - Geoff Joko - 10-15-2012 08:56 PM
Originally, facebook traded at 38 dollars a share. Now it's around 31.5 dollars a share (around a 20% drop)
Facebook opened originally with a valuation of 104 bilion... now it's down to about 66 million. That's a 35% drop!
I don't really understand the stock market that much; how could the value of a company go down more percentage points than the company's stock?
- Joe - 10-15-2012 09:05 PM
The price of a stock has more to do than just the value of the company. Even though those individual shares are technically overvalued because the share went 20% down in price yet the value went 35% down, it all comes back to supply and demand. If enough people are buying the shares than it is possible that the price of the share may be higher than what it's actually worth (which is why it's called an "overvalued" stock)
- scobranchi - 10-15-2012 09:05 PM
No disrespect but Joe has no idea what he's talking about. Also, why do you think FB's market cap dropped 35%? Let's look at the numbers. A drop from $38/share to $31.5/share is a drop of 17%. Using your numbers of 106 billion and the the current market cap of $87 billion it's a drop of 18%. The numbers should be exactly the same but we probably don't have the correct figures for an exact calculation.
By definition, a company's market capitalization is the number of shares multiplied by the share price. If the stock price drops by a certain percentage, the market cap drops by the same percentage. That's why you see things like stock prices dropping if a company issues more shares (dilution) or splits the stock. The company is not inherently more valuable - the market cap remains unchanged in the short term.