What is a fair value for Facebook? The answer can range between $30 or $55 a share. It depends on whether FB gains a measly 2% share of the global ads spend of $600 billion per year, or a more reasonable 5% share. The estimates include the $4.77 cash per share. If FB does execute, then buying FB at around $20 could result in a 50% to 175% return on investment based on the discounted future earnings.
With regards to the 1.9 billion stock overhang, it is reasonable to believe that these investors may have hedged their long positions with options. From a psychology vantage, these investors will reduce their holdings without disturbing the market unduly. A sale of 1.9 billion shares in a short space of time would crush the stock price, given that FB’s current float is only 421 million shares. Moreover, this common knowledge is conceivably factored into the stock price. Finally, these investors may be true believers of FB’s profitability and hence may hold onto their shares instead of selling them. After all they have the foresight to be early stage investors. We shall see.