The Facebook (NASDAQ:FB) initial public offering has been filed and, according to the prospectus, the company plans to sell 337.4 million shares in a range between $28 and $35. At the $31.50 midpoint, the offering will be $10.6 billion. The Morgan Stanley-managed offering is expected to be priced Thursday, May 17, and begin trading Friday, May 18.
How might this offering be expected to perform? We know this is the most highly anticipated IPO in years. It is a larger deal than Google (NASDAQ:GOOG) and Blackstone (NYSE:BX), but smaller than Visa (NYSE:V). These three IPOs provide guidance to my expectations for Facebook.
Google went public in August 2004. The offering was priced at $85 a share and opened at $100, and then kept going higher. It was a great investment at the offering price and at any time the first day. A classic buy and hold.
Blackstone went public in June 2007. The initial range was $29-$31 and the IPO was priced at $31. The stock moved up near $39 the first day and then started to slide. In three months, the Blackstone shares were down $10.
Visa went public in May 2008. The increased filing range was $37-$42 and the offering was priced at $44. The shares rose above $59 the first day and continued to rise above $80 before moving back toward the IPO price in a bear market.
According to the prospectus, Facebook earned $0.52 in 2011. The P/E ratio of 60 at the offering midpoint seems reasonable to me. If the IPO price is above the range, which is certainly possible, that would indicate a strong opening performance.
Don't compare Facebook with the recent LinkedIn (NYSE:LNKD) offering a year ago. While LinkedIn more than doubled from its $45 offering price the first day, it was only an 8 million-share offering. Just a small slice of the company was sold, the classic pricing scenario from the dot-com era.
I expect Facebook to trade higher the first day. I think Morgan Stanley wants this to be a good deal. I would only buy shares on the offering, but would not be a long-term holder. I would not buy shares in the market on the first day of trading. Watch the trading action for guidance.
The earnings performance of Google and Visa since their offerings has been fantastic. Not so for Blackstone. The stocks have performed in a way that reflects their actual earnings performance.
At the current filing range or a bit higher, I would buy the Facebook IPO, sell some on the expected first-day pop, and then watch for clues.