Pericles Dialectic's  Instablog

On the day that Facebook went public I was out of town and

didn't get extensive information about the first day of trading into

I got into my hotel that night. It was at that moment that I knew

for the first time that the coming days were going to be a bloodbath

for the longs.

The activity during the IPO day begs the question of whether

or not Morgan Stanley did their job. The answer depends on how

you define that job. My answer would be no. Getting the maximum

cash for the company has to be balanced against losing 25 billion

in market capitalization since that time,making it next to impossible

for the company to raise more funds and creating a bad environment

for IPOs of other companies in the future.

Conversely this performance has a silver lining. If the stock had

been priced at 28 and additional shares had not been offered,it

would have inflated to over 50 on that first day of trading and many

more small investors would have piled in at the top,leading to even

more losses by the small investor.

The reality is that Facebook has the one thing that the market

loves and that something is the opportunity for phenomenal growth.

That metric dwarfs all others in today's markets.

Currently there is projected to be about one trillion in online ad revenue in a few years. If we assume that Facebook can maintain its

current position in desktop display and can get a fraction of 1% of

the mobile,e-commerce,online video and goods markets,the revenue

growth should have a CAGR of 38% over this time frame. This scenario

assumes no revenue from any other source. Should this growth occur

Facebook will gross 20 Billion plus by the end of 2016. Profit margins

at current levels will produce EPS of 3.20 and a p/e of 23.44 on those

earnings gets you to 75. It is my contention that Facebook's having

a 1% share of this ad market is conservation by any metric and that with the stock trading at about $20.00 today, this will be a very high return on investment.

Disclosure: I am long GOOG, AAPL, AMT, AMZN, FB, F, CAT, IBM.