Facebook IPO will be tough for investors to get in on

[aaron]

I am considering of trying my luck or is it just crazy?

Facebook IPO will be tough for investors to get in on

Most of the large online brokerage firms, including E-Trade, Fidelity and Charles Schwab, are allowing customers to request shares of the Facebook initial public offering. It's the latest phase in kicking off what's expected to be the largest technology IPO next week.
Given the large degree of attention on this IPO, though, investors shouldn't expect to actually get shares or make money on them. "I anticipate there to be many orders relative to the number of shares available to allocate," says Jay Ritter, professor of finance at the University of Florida.

Some key caveats and risks investors interested in getting Facebook shares from their brokerages should keep in mind include:

•Rules limit who is eligible. Most online brokerage firms reserve the right to limit who gets Facebook shares. Fidelity investors must have $500,000 in qualified balances at the brokerage or trade 36 times a year or more to be considered, the company says. Schwab is telling customers to call their representatives to see if they are eligible.
TD Ameritrade is allowing investors to participate if their account is valued at $250,000 or more or they have completed at least 30 trades in the past three months.
•No guarantee of shares even for qualified investors. While investors might request shares, they might not get any or as many as they'd like, Ritter says.
•Stipulations to ownership. Most brokerages don't require investors to hold IPO shares for a set number of days but may punish investors who don't. E-Trade recommends investors hold IPO shares for at least 30 days and may exclude investors who don't from future deals, says the company's website.



Fidelity investors may be precluded from future IPOs if they sell in fewer than 15 days.
•Returns could be disappointing. With Facebook coming to market with a valuation of roughly $86 billion on the total company, even buying at the IPO price could be risky, says Francis Gaskins of IPOdesktop.com.
The company's value is lofty given that growth has been slowing, he says.
And Internet IPOs aren't surefire winners , as some recent deals show. Online coupon company Groupon and Internet radio company Pandora have seen shares fall 48% and 41%, respectively, from their IPO prices.
Even so, investors hoping for Facebook shares won't know if they're in until after the IPO sets its price late next week, as is now expected.
"It's going to be difficult" to get many shares, Ritter says.

http://www.usatoday.com/money/perfi/...res/54845324/1

[Adeptus]

Re: Facebook IPO will be tough for investors to get in on

Trying to buy shares at IPO price before open, is probably not so bad a move. I can see the average joe speculating all over this one post market open. I've gotten in on IPOs before as a small investor and in my experience a tiny percentage of my $$ pledged up front actually managed to get IPO allocated shares. So for example, if I pledged $50,000 I was lucky to get $4,000 worth of shares, meanwhile the entire $50,000 was tied up. It all depends on the size of the IPO and demand for it. Demand for this one is likely through the roof, so your fill is going to be very low and thus not very high risk. As for pricing short term, who knows. Long term, it's very questionable. Many are wondering if this isn't tech bubble 2.0 all over again. Where's the revenue to justify the PE? IMO buying instagram for $1 Billion doesn't inspire confidence.

[jpatter666]

Re: Facebook IPO will be tough for investors to get in on

Trying to buy shares at IPO price before open, is probably not so bad a move. I can see the average joe speculating all over this one post market open. I've gotten in on IPOs before as a small investor and in my experience a tiny percentage of my $$ pledged up front actually managed to get IPO allocated shares. So for example, if I pledged $50,000 I was lucky to get $4,000 worth of shares, meanwhile the entire $50,000 was tied up. It all depends on the size of the IPO and demand for it. Demand for this one is likely through the roof, so your fill is going to be very low and thus not very high risk. As for pricing short term, who knows. Long term, it's very questionable. Many are wondering if this isn't tech bubble 2.0 all over again. Where's the revenue to justify the PE? IMO buying instagram for $1 Billion doesn't inspire confidence.

I would not touch Facebook (post IPO) with a 20-foot cattle prod.

One trend I've been seeing is many of my nephews and nieces have moved off Facebook. No loyalty there....

[lektrode]

Re: Facebook IPO will be tough for investors to get in on

I would not touch Facebook (post IPO) with a 20-foot cattle prod.

One trend I've been seeing is many of my nephews and nieces have moved off Facebook. No loyalty there....

uh huh... think its hilarious how its being touted as them having "1 billion users"...
and this metric is part of its potential valuation?

why i think its another AOL (almost on line) pump n dump - just like what happened when they were all of a sudden worth more than time warner and bought em - based upon the number of dial-up accounts they had?

dunno how many AOL accts anybody else had, but at one point i had over a dozen (to get the free hours of dial-up) - they were given em away by the millions - CD's of their software in magazines etc etc

now - does anybody really believe facebook has a billion users?
i mean chrikie mate - they make you log in just to look at anything within the site?
a billion users, huh... shur - i'll bet its more like 100million tops, with 10 login/accts each (if not lots more than that)

personally i've never, not once EVER logged into facebook - and flatly refuse to - not when they make you 'create an acct' just to look at someone elses stuff?

the other thing that i find hilarious is how practically every other corporation in The US gives em free advertising, as in: "find us on facebook" - vs: come to OUR website -- why in hell would any business want to be touting facebook, rather than their own damn website???

and THEN theres the lamestream media - i havent been able to go so much as a half day without hearing some media twit blathering on about what he/she saw on facebook today

i mean its like someone is PAYING THEM to do it...

but, well... the only thing more pronounced than my skepticism is my cynicism, so hey!
i'm sure somebody is gonna make a killing with it (aint gonna be me tho... sigh....)

[astonas]

Re: Facebook IPO will be tough for investors to get in on

I would not touch Facebook (post IPO) with a 20-foot cattle prod.

One trend I've been seeing is many of my nephews and nieces have moved off Facebook. No loyalty there....

+1

Facebook has missed its peak. Its continuous and malicious-seeming changes to its privacy policies are actively driving away users. I'm one. I still on rare occasions look in to see what others are up to, but I won't use it to post any information, since the company can't be trusted to not abuse it. And when I do log on, it looks like fewer and fewer of the people I link to are saying anything. For me, it has become little more than a self-updating contacts list. It is dangerous to generalize from limited experiences, of course, but if others are seeing the same thing, I think this might be closer to pets.com than amazon.com.

I'm sure there will still be a fantastic IPO, but in the long run, I think share prices will drop, as the disclosures associated with being a public company will compromise its ability to hype and spin its activities. And when users start to see what privacy limits will have to be breached for the company to get to the next-stage profit goals, I think they will leave in droves.

But again, maybe I'm just projecting my own perspective on privacy onto others.

[LorenS]

Re: Facebook IPO will be tough for investors to get in on

My boss asked me about FB IPO shares. I told him my feelings on IPOs was that the people with the most inside info had decided it was time to sell shares to those with the least inside info.

At one point in time "getting in on the ground floor" via an IPO was an ok strategy. A company with a nominal $90 billion valuation is not a ground floor opportunity. It looks high risk to me.

The USA today article says that you may be "punished" for selling the shares before 30 days or so. I don't see FB as a long term hold.

I have no FB account. I email my friends and family.

Besides, what is the purpose of this IPO? Do they need to buy a bunch of servers? What on earth are they raising capital for? It looks like someone wants to cash in some chips and put $$ in the bank. You can't spend shares at the yacht store.

[jpatter666]

Re: Facebook IPO will be tough for investors to get in on

+1

Facebook has missed its peak. Its continuous and malicious-seeming changes to its privacy policies are actively driving away users. I'm one. I still on rare occasions look in to see what others are up to, but I won't use it to post any information, since the company can't be trusted to not abuse it. And when I do log on, it looks like fewer and fewer of the people I link to are saying anything. For me, it has become little more than a self-updating contacts list. It is dangerous to generalize from limited experiences, of course, but if others are seeing the same thing, I think this might be closer to pets.com than amazon.com.

I'm sure there will still be a fantastic IPO, but in the long run, I think share prices will drop, as the disclosures associated with being a public company will compromise its ability to hype and spin its activities. And when users start to see what privacy limits will have to be breached for the company to get to the next-stage profit goals, I think they will leave in droves.

But again, maybe I'm just projecting my own perspective on privacy onto others.

I'll be munching popcorn and watching, but not participating. For larks, I had the following (paraphrased) conversation with one of my more "hip" nephews.

Me: "Why don't you post anything on Facebook anymore?"
Him: "First, it's gotten boring. Second, it's now for older people. YOU'RE on it -- my MOM is on it."
Me: "So?"
Him: "You and she insist on being friends with me -- it's hard to reject -- but there's things I post there I don't want you to see"
Me: "Ah....well, why not just create another account?"
Him: "Because you might still be able to find it. I'm not a computer expert. I post on Facebook occasionally so you think I'm still active"
Me: "So what do you do now?"
Him: "Twitter posts, Google+ (none of you are there [not true: I am]) and one other site I don't want to tell you"

The boring part was interesting -- the wanting to avoid any adult relatives also kind of made sense.

[reggie]

Re: Facebook IPO will be tough for investors to get in on

I would not touch Facebook (post IPO) with a 20-foot cattle prod.

One trend I've been seeing is many of my nephews and nieces have moved off Facebook. No loyalty there....

Good. May this Cybernetic beast fail and fail quickly.

uh huh... think its hilarious how its being touted as them having "1 billion users"...
and this metric is part of its potential valuation?

why i think its another AOL (almost on line) pump n dump - just like what happened when they were all of a sudden worth more than time warner and bought em - based upon the number of dial-up accounts they had?

dunno how many AOL accts anybody else had, but at one point i had over a dozen (to get the free hours of dial-up) - they were given em away by the millions - CD's of their software in magazines etc etc

now - does anybody really believe facebook has a billion users?
i mean chrikie mate - they make you log in just to look at anything within the site?
a billion users, huh... shur - i'll bet its more like 100million tops, with 10 login/accts each (if not lots more than that)

personally i've never, not once EVER logged into facebook - and flatly refuse to - not when they make you 'create an acct' just to look at someone elses stuff?

the other thing that i find hilarious is how practically every other corporation in The US gives em free advertising, as in: "find us on facebook" - vs: come to OUR website -- why in hell would any business want to be touting facebook, rather than their own damn website???

and THEN theres the lamestream media - i havent been able to go so much as a half day without hearing some media twit blathering on about what he/she saw on facebook today

i mean its like someone is PAYING THEM to do it...

but, well... the only thing more pronounced than my skepticism is my cynicism, so hey!
i'm sure somebody is gonna make a killing with it (aint gonna be me tho... sigh....)

Sending ones users to Facebook is not a finacial consideration, but reflects a committment to the a system of control. It's about managing what Voegelin refers to as "In-Betweenness".

[Adeptus]

Re: Facebook IPO will be tough for investors to get in on

A few additional points:
* I use facebook daily, why? Because all my friends and family are on there and not on Orkut anymore (Orkut was big with the Portuguese & Brazilian population), and 75% of my facebook connections did NOT migrate to Google+, if they had, I'd be gone from facebook.
* Last I heard, facebook claimed 800 million users and 500 million active users. That might have been a few months ago. The latest S1 (sixth ammendment) states 901 Million active users.
* Facebook touts they will expand into the mobility space, but given most of their current revenue is from ads, the number of ads will shrink by more than 60% for users that use it on mobile devices rather than on a PC due to lack of space for ads on mobile platforms.
* On the news yesterday, they were explaining that Facebook revenues are actually shrinking in the last 2 quarters, so looks like they've missed the IPO boat from a timing perspective.
* This is likely attributed to the fact that their userbase is climbing faster than they have ads to serve, this is a liability in at least the short term. More expense, less revenue.
* Last week Facebook stated it granted about 796 million in restricted stock units to employees less than a week ago. I wonder how long those employees will be around now.
* On a positive note, Facebook just launched its own App Center so users can discover/search for quality apps.
* Today it also launched file sharing for user groups to compete with Google's recent file storage offer and the incumbent dropbox service


Is Facebook worth 100 Billion? Not today, but markets are psychological. Can it continue to evolve and improve through its 500 super smart software engineers? Absolutely. Will it be around in 10 years? Who knows, many of the past big internet companies have now mostly faded: ICQ, Myspace, Geocities, Orkut, webcrawler, altavista, etc. It will be around until something better takes over. Something better will eventually appear, the question is, at that time will they recognize it, and adapt fast enough or buy it out? The future will tell...

[c1ue]

Re: Facebook IPO will be tough for investors to get in on

On the news yesterday, they were explaining that Facebook revenues are actually shrinking in the last 2 quarters, so looks like they've missed the IPO boat from a timing perspective.

A significant portion of Facebook's revenue has been because of Zynga:

http://vator.tv/news/2012-02-01-zyng...cebook-revenue

Zynga is mentioned two dozen times in the newly released Facebook IPO paperwork and shows that the advertising and virtual coins bought to play the games accounted for a 12% of the $3.7 billion Facebook claimed in revenue for 2011.

Zynga is doing what all platform customers do when faced with difficult growth prospects and a big expense - they're trying to do their own platform.

Zynga's problems are also leading at least a few others to wonder just how beneficial a reliance on Facebook is long term.

This, in a nutshell, is a big conundrum for Facebook.

[lektrode]

Re: Facebook IPO will be tough for investors to get in on

zynga & groupon mentioned below:

http://online.wsj.com/article/SB1000...850246518.html

As social-networking giant Facebook prepares to sell stock to the public for the first time, money managers are mobbing investor roadshows and deluging the deal's underwriters with requests for as many shares as they can get their hands on.


Ordinary investors, however, would be better off waiting until some of the buzz dies down, experts say.

The initial public offering, expected on May 18, could value the company at anywhere from $77 billion to $96 billion based on its $28- to $35-a-share price range—making Facebook the biggest company to go public in U.S. history, according to Dealogic. Some analysts already have issued one-year price targets as high as $46 a share.


Yet Facebook's IPO isn't a sure home run for small investors. Even if the stock gallops out of the gate on its first trading day, most retail investors will be shut out of the offering and won't get the IPO price, meaning they likely will have to pay more in the days that follow if they want an early piece of the action.


Over the longer term, conventional metrics suggest Facebook's sky-high valuation will be difficult to sustain. Skeptics point to worries that the company's rocketing sales and earnings growth is slowing, and say the biggest investment gains for the eight-year-old company already might have been reaped by the founders, venture capitalists and other well-heeled investors who took earlier stakes.


The best bet for small investors, experts say: Wait awhile.


While the Facebook IPO is like no other before it, many of the classic rules for investing in IPOs apply: Avoid the initial rush into the stock, monitor the company's early financial reports for signs of softness, keep any bets small and beware the six-month mark, when insiders can start dumping their shares.


"No matter how you slice it, Facebook is a special company," says Tim Keating, CEO of Denver-based Keating Capital, which provides funding to pre-IPO companies. "But investors have to recognize that a great company isn't automatically a great investment."


Social Media Frenzy

Investors can be forgiven for getting caught up in the hype. After an earlier IPO wave for smaller social-media websites such as Groupon and Zynga, they finally have a chance to invest in the big daddy of them all.
But consider some comparisons with another highflying social-media stock, LinkedIn, which went public in May 2011. The stock more than doubled on its first day of trading, then lost a third of its value over the following month, then zoomed again, trading recently at about 19% above its first-day closing price.
When Facebook goes public, the company is expected to trade at anywhere from 77 to 96 times its 2011 earnings, a seeming bargain compared with LinkedIn's multiple of well over 200 times its 2010 earnings, the year before it went public.
But Facebook is orders of magnitude larger. It has about 900 million users globally, compared with about 102 million for LinkedIn at the time of its IPO. Facebook's sales totaled $3.7 billion in 2011, the last calendar year before its IPO—15 times greater than LinkedIn's sales in 2010.
For companies the size of Facebook, such high valuations are highly unusual. The broad Standard & Poor's 500-stock index trades at about 13 times its 2011 earnings. And of the 33 U.S. companies valued at more than $77 billion, the low end of Facebook's expected valuation, only two, Amazon.com and Bank of America, have price/earnings multiples above 100—and in BofA's case the P/E ratio is high mainly because earnings have been weak.
The closest comparison to Facebook's IPO is Google's 2004 offering, but Facebook already is much larger than Google was then. Its revenues are about 50% greater than Google's were, and Facebook's expected market capitalization will be as much as four times that of Google at its IPO, according to Dealogic.
Yet Facebook is nearly as richly valued as Google, whose P/E at its offering price was about 120 times its earnings in the previous four quarters.
The bottom line: Facebook's valuation "leaves zero margin of safety," says Vitaliy Katsenelson, chief investment officer of Denver-based Investment Management Associates, which manages about $60 million. Mr. Katsenelson doesn't plan to buy Facebook's stock.
To warrant its high valuation, Facebook must continue to expand rapidly. The outlook is mixed.
Facebook in April reported a first-quarter net income of $205 million, down from $233 million in the first quarter of 2011, mainly because of higher costs. Looking ahead, Brian Wieser, an analyst at Pivotal Research Group, says revenues could increase 34% in 2012, down from 88% in 2011, while earnings per share could rise 54% in 2012, down from 64% last year.
Taking all of this into account, Aswath Damodaran, a finance professor at New York University and an expert on valuation, says Facebook probably is fairly valued at around $75 billion to $80 billion, assuming its revenues and earnings keep rising briskly and it can keep profit margins near 30%.


Nasdaq Pop?

Facebook does have one factor in its favor: Major stock indexes want to include it quickly, and that could give the share price a booster shot.
Nasdaq OMX Group changed its rules last month so that it can include stocks after just three full months of trading, rather than at least one year. That means Facebook would be eligible for inclusion in the Nasdaq-100 stock index as soon as September and could be part of the index by the end of the year.
Standard & Poor's can add companies to its indexes after as little as six months of trading. Although it usually waits longer, some experts say in Facebook's case it could act sooner.
"S&P tries to recognize all industries," says Jay Ritter, a finance professor at the University of Florida and an IPO expert. "I wouldn't be surprised if it added Facebook after the [six-month insider-selling] lockup expired."
An S&P spokesman says that just because a company meets every inclusion criteria doesn't mean it automatically is included in the S&P 500.
Being added to an index can have an immediate impact on a company's share price, as funds that track the index scramble to buy shares. Prof. Ritter estimates a company the size of Facebook can gain as much as 1% for every $100 million of stock connected to any index. So inclusion in the Nasdaq-100 alone could translate to as much as a 7% bump in Facebook's share price, according to his analysis.
The problem for small investors? Most of the buying happens the day an index firm announces it is including a stock, not when it actually adds the stock. Investors who blink could miss out on the short-term gain.
After the close of trading on March 23, 2006, for example, S&P said Google would be added to the S&P 500. The stock jumped 7% the next day. It gained just 0.4% on March 31, the day it was officially added to the index.


What to Expect on Day One

During Facebook's early days of trading, questions of valuation will take a back seat as big investors look to make a quick buck off the IPO. "It's a momentum game," Prof. Damodaran says. "Many people want to buy it and flip it."
Given its size, Facebook might not be primed for the sort of frenzied first-day rally that some smaller companies enjoy. In general, the bigger the company, the smaller the initial jump. From 1980 through 2010, the stocks of companies with revenues of $500 million or more gained an average of 9.1% on their first day of trading, less than half that of the average IPO generally, according to data from Prof. Ritter.
The reason: Smaller companies are typically seen as having more growth potential. Whereas LinkedIn doubled on its first day of trading, Google rose at a much more modest 18% in its 2004 debut.
Facebook's offering price can make a big difference, Prof. Ritter says. If it prices within its range of $28 to $35, its first-day return is likely to be between 10% and 18%, he says. If the stock prices above $35, the return could be substantially higher. If the stock prices below $28, the first-day return could be near zero.
Bear in mind that only about 20% of the shares sold at the typical IPO's offering price go to individuals, Prof. Ritter says. The rest go to professionals.
E*Trade Financial was added to the list of Facebook underwriters on May 3, suggesting Facebook is looking to give more small investors a shot. E*Trade, via its IPO center, already is taking orders for Facebook shares, though there isn't a guarantee clients will get them.


So What to Do?

If the IPO doesn't soar and the stock trades at the low end of its expected valuation, investors might want to start nibbling, Prof. Damodaran says.
But waiting a bit longer can be beneficial. Facebook might not provide much financial guidance beyond its reported results during its first few quarters of trading, says Steve Bishop, portfolio manager of the RS Technology fund, who added that he expects to buy Facebook at its offering. That, he says, could result in a rocky ride for investors but also better buying opportunities.
That has been the pattern with recent social-media IPOs. LinkedIn, for instance, lost about a third of its value during its first month of trading following its first-day close of $94.25, but has since come back to about $110. Investors who bought on that dip could have made as much as 77%.
The longer the wait, the more time investors have to watch how management handles its first few earnings reports. Sometimes early troubles can hammer a new stock. Shares of Groupon, for example, soared 31% on their first day of trading on Nov. 4; since then they have lost more than two-thirds of their value after the company restated its revenues amid widening losses.
By waiting, small investors also could capitalize on any dip resulting from insider selling.
In Facebook's case, most insiders are barred from selling their shares for six months after the IPO, though some will be permitted to sell after three months. There is no way of knowing for sure when Facebook insiders will sell, but in general the six-month mark tends to bring brisk insider selling—and a drop in share prices.
Investors who decide to buy should keep their bets small, Prof. Damodaran says. Most financial advisers recommend that a single stock make up no more than 5% of a portfolio. And given that Facebook might soon be included in the major indexes, many investors will end up owning some percentage of the stock without even trying.
Says Prof. Damodaran: "Facebook has something to offer, but there's so much we don't know."
—Joe Light contributed to this article.

[DSpencer]

Re: Facebook IPO will be tough for investors to get in on

+1

Facebook has missed its peak. Its continuous and malicious-seeming changes to its privacy policies are actively driving away users. I'm one. I still on rare occasions look in to see what others are up to, but I won't use it to post any information, since the company can't be trusted to not abuse it. And when I do log on, it looks like fewer and fewer of the people I link to are saying anything. For me, it has become little more than a self-updating contacts list. It is dangerous to generalize from limited experiences, of course, but if others are seeing the same thing, I think this might be closer to pets.com than amazon.com.

I'm sure there will still be a fantastic IPO, but in the long run, I think share prices will drop, as the disclosures associated with being a public company will compromise its ability to hype and spin its activities. And when users start to see what privacy limits will have to be breached for the company to get to the next-stage profit goals, I think they will leave in droves.

But again, maybe I'm just projecting my own perspective on privacy onto others.

I am basically at the same point. They have basically lost any trust from me that once existed. I use it to some degree to check in on other people but rarely change anything about my own relatively sparse profile. However, I don't think it's totally fair to assume everyone has the same view. Somebody out there must be playing farmville.

I still have very serious doubts about the longevity of Facebook even if lots of people are very active users and don't care about the privacy aspect. IMHO the entire value of FB is in the fact that everyone is using it. New ways of connecting with people are coming up all the time. I have no loyalty whatsoever to FB and think it gets worse all the time. I view it more as a necessary evil to stay connected with people I otherwise might lose touch with.