Recently, we got news of Facebook (FB) increasing its IPO size and price range. It's now possible for the IPO to be for as many as 420 million shares and have a top price of $38 per share. This, together with the greenshoe, makes it possible for the deal to reach around $18.5 billion. A deal this size has consequences.
Many of the funds taking on Facebook shares are permanently close to a full allocation. They have nearly all their funds invested. Yet, Facebook will be one of those shares that you won't be able not to own, so these funds will be forced to buy into it. And at a $100 billion or more market capitalization, the allocations to the stock won't be small, either. This will be a stock whose weight in the funds should, at the very least, challenge Amazon.com's (AMZN), a stock with similar market capitalization, but worse fundamental trends going for it.
What this means is that most of the funds taking on Facebook shares will have to sell other growth stocks. I have already written on how growth funds seem to be overexposed to Amazon.com, probably due to lack of serious large cap alternatives. This will probably mean that Amazon.com will be one of the positions seeing some selling to make space for Facebook. But it won't be the only one.
Other large capitalization growth stocks should also see some selling, given the large size of Facebook's IPO. Most at risk will be stocks where a large percentage of the outstanding shares are already owned by growth funds. A few examples would be (source: CNBC):
- Zynga (ZNGA), with 9.1% of its shares owned by growth funds, 7.4% by aggressive growth funds and 5.5% by core growth funds;
- Pandora (P) also seems at risk, with 9% of its shares being owned by growth funds;
- Shutterfly (SFLY) is another stock that might be affected, given that growth funds own 14.9% of its shares and aggressive growth funds own 12.5%. SFLY might see this effect mitigated by the fact that it is a rather small capitalization (so it is not a place where funds can get meaningful amounts to invest);
- SINA Corporation (SINA) might also see some impact, with 10.8% of its shares owned by growth funds and 3.3% by core growth funds;
- Netflix (NFLX). In spite of its recent troubles, Netflix is still owned by quite a few growth funds. 8% of its shares are in aggressive growth funds and 5.1% in growth funds.
Even in its original size, the Facebook IPO was going to take some liquidity out of other growth stocks. However, its new and expanded size, both in volume and price, should make that effect even more relevant.
Stocks that are more heavily owned by growth funds are most at risk of being sold to make space for Facebook. This article listed several such stocks.
Disclosure: I am short (AMZN).