On February 1st of this year, Facebook (FB) made its long-awaited initial public offering announcement. Investors and the general public have been swirling about an IPO for years, as many have speculated its time frame and when the public would actually be able to get its hands on the stock. The secrecy and rumors were comparable to that of when the iPhone cut its exclusivity with AT&T, leaving the door wide open for other telecom giants as well as investors. Now that Facebook has finally put the speculation to rest, it’s time to look at the facts and figures of the world’s largest social media site [see also Doomsday Special: 7 Hard Asset Investments You Can Hold in Your Hand].
Facebook is currently home to over 800 million users, roughly 11% of the world’s population. The company “revealed impressive statistics about its growing and active userbase, which totals 845 million members, more than half of whom, or 483 million, return to the site daily. These hundreds of millions of users have shared more than 100 petabytes (100 quadrillion bytes) of photos and videos with Facebook, and produced an average of 2.7 billion “likes” and comments a day in the final three months of 2011″ writes Bianca Bosker.
With the number of users only growing, marketers around the world have been champing at the bit to tap into the power that Facebook holds. “From the social media marketing point of view, Facebook is a very effective marketing and advertising tool. 48 percent of those surveyed indicated they spend 25% or more of their social media marketing budgets on Facebook, and 76% indicated they plan to increase their marketing spend with Facebook in 2012″ writes The San Francisco Chronicle. Advertising accounts for the vast majority of Facebook’s profits, a major point of concern for some. Of course, the survey results also note that constant advertising tends to scare users off, which could open the door for up and comers like Google+ [see also 3 ETF Trades For The Next Euro Zone Debt Crisis].
It is currently estimated that the firm will issue roughly 500 million shares of its Class B common stock to the general public, creating plenty of opportunity for investors. But the IPO will also have a significant impact on the ETF world, as many funds will rebalance their holdings if Facebook is included in major indexes (the stock will be listed on the Nasdaq). One ETF in particular will be impacted by this IPO, as Facebook’s stock will be included in the top holdings, shifting the balance of the fund.
Facebook and SOCL
The Social Media Index ETF (SOCL), from Global X, launched late last year, but had trouble attracting investor attention out of the gate. That all changed when Facebook announced its IPO, as SOCL enjoyed a nice jump in volume that has amounted to a trailing one month ADV of nearly 50,000 shares, a strong figure for such a young fund. Investors have been speculating that the fund will surely have to include Facebook and are planning to utilize the ETF for a diversified exposure to the company [see also How An Apple (AAPL) Dividend Would Impact ETFs].
We had the opportunity to speak with Bruno del Ama, CEO of Global X Management, about SOCL and how Facebook will impact the ETF. Facebook’s stock will be added into the underlying index at the end of its 5th public trading day, meaning that it will also be added into SOCL at approximately the same time. Though it is still not set in stone, del Ama noted that with the expected 10% free float and a valuation ranging anywhere from $70 to $100 billion, Facebook would likely be one of the top holdings of SOCL.
With Facebook more than likely falling into SOCL’s top holding, this ETF will make for one of the safest and most effective ways to play the stock. Most IPOs are fairly volatile, shying away investors until the buzz wears off and the stock settles in at its trading price. SOCL will offer a diversified play on the IPO, as it will still grant significant weight to the stock, but will also maintain the majority of its exposure to other companies. Also, the five-day waiting period before inclusion will ensure a more stable portfolio as the first few days of any new stock are wildly unpredictable. If recent history has been any kind of indicator [with IPOs like Groupon (GRPN) and LinkedIn (LNKD)], the social media giant will likely soar on the opening bell before settling out to a lower price over the next few days.
Disclosure: No positions at time of writing.
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