The social media behemoth Facebook (FB) is going public this week, with a new stock symbol of FB. This is pretty much the most anticipated Initial Public Offering (IPO) since Google (GOOG) in 2004. GOOG was offered in the IPO at around $85/share, started trading at about $100, and is now about $628 - hence why many people are interested in the Facebook IPO.
The IPO price will likely be in the $34 to $38 range (which has just been raised due to demand apparently), but when it starts publicly trading, who knows where it will open (likely higher). And they have raised the number of shares available in the IPO by 25%, in response to strong demand. Both the raising of the offering price and the increase of shares is a concern in our view.
If you want to try to buy it for the IPO price and flip for a quick profit, good luck! The major brokers like Schwab, Fidelity and Ameritrade should have some shares for their clients … BUT, it's likely restricted to the wealthiest, most active investors, according to AP/ABCNews :"Fidelity, which will be getting an undetermined number of shares from underwriter Deutsche Bank, says customers should have $500,000 in their accounts and have made 36 trades in the past year to be eligible. Ameritrade's account requirements are at least $250,000 and 30 trades in three months. Schwab's are a minimum $100,000 or 36 trades in the past year, but the firm says it also has other requirements."
Asked for his thoughts on the matter, Price Headley (founder of BigTrends.com) tells me via email that many tech IPOs and social media stocks have not acted well recently, such as LinkedIn (LNKD), which has just recovered to its IPO levels recently. Meanwhile Groupon (GRPN) and Zynga (ZNGA) have been outright dogs. He also warns that while FB is the clear leader in this space, this may be one of the most overhyped names ever and is similar to some names in the 1990s when the focus was on eyeballs over earnings. Bottom line from Price is to wait and watch the reaction after the first week of trading is in place.
But something else to consider is that the media seems to be far from overly-bullish or overly-hyping this IPO. In fact, many large media companies seem to be outright negative or warning investors about the FB IPO. I've noticed several of these articles recently and Googled others ("Googling", by the way reminds me that when a company name becomes a verb is often a good sign that it's permeated society in a meaningful way - such as "friend me" or "are you on Facebook?") - see the long list of articles following below.
From a contrarian perspective, it would be encouraging for a Facebook bull to see such a large amount of negative sentiment from so many outlets. In addition, I don't quite feel the mass need to get in this IPO like we saw in the Internet Bubble days … a former CBOE trader friend of mine said he thinks FB will be the next Netscape -- "huge opening day, top in opening month, then slow motion train wreck." Another anecdote -- but my baby boomer mother and others haven't asked me how they can get in on it. This gives somewhat of a "contrarian buy" feel to it.
- Warning: Stay Away From The Facebook IPO - Forbes
- Facebook IPO: Insiders Cashing Out - WSJ.com
- The Facebook IPO Frenzy Turns Depressing -Gawker
- Why You Shouldn't Care About Facebook's IPO | Inc.com
- Beware the Facebook IPO - CBS News
- Three Headwinds for Facebook's IPO - Harvard Biz School
- Facebook IPO Overvalued at $96 Billion in Global Poll - Businessweek
- Facebook IPO's elephant in the room - mobile - Computerworld
- Ahead of Facebook IPO, poll finds user distrust - USATODAY.com
- Facebook IPO Said to Get Weaker-Than-Forecast Demand - Bloomberg
- Want in on the Facebook IPO? Wait awhile and see if you still 'like - NYDailyNews
- Facebook Insider Selling: Sell Signal? - CNBC
- Facebook Is Only Worth $18 - TheStreet
- Facebook's IPO: Do not buy | - CNET News
Overall, this is a tricky one - I find Facebook and Twitter both to be very useful and addictive social network services, more for pleasure and information sharing than for business uses. 900 MILLION users and growing is certainly nothing to sneeze at - and the company is constantly working at finding new ways to integrate itself into our lives and modern life in general. Many companies are apparently finding that Facebook pages give them much better bang for the buck than their expensive web sites do.
There may be vast new revenue streams available in the future that aren't even perceived now that will increase the company's valuation/profits/revenues - but Facebook is certainly not being offered at a bargain basement cheap price. And many have seen the way the likes of once dominant leaders like MySpace disappeared and are skeptical. Also there are concerns of smartphone app usage and other future technologies that could hurt the company's dominant market share.
But on the other hand, who wouldn't love to have to bought Google on its opening day, or Apple (AAPL) before it released the first iPods? I would say be very careful buying in the first few days or so, but if you're a long-term believer that Zuckerberg & Co will continue to "change the world", you may find FB to be a good long-term buy if you wait a bit.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.