Best of the Week
Most Popular
1.Stock Market in DANGER of Strangling the Bears to Death - Nadeem_Walayat
2. Germany Pivoting East, Exit US Dollar, Enter Gold Standard - Jim_Willie_CB
3.Flight MH17 – Kiev Flash Mob's Last False Flag? - Andrew_McKillop
4.Stock Market Crash Nightmare! - Nadeem_Walayat
5.Gold - The Million DOLLAR Question... - Rambus_Chartology
6.Gold And Silver – BRICS And Germany Will Pave The Way - Michael_Noonan
7.The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - Nadeem_Walayat
8.The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - Felicity Arbuthnot
9.Which Way is Inflation Blowing? Watch Commodities - Gary_Dorsch
10.U.S. Economy Quarterly Review and Implications for 2014-2015 - Lacy Hunt
Last 5 days
What It Means - Paradigm Collapse And Culture Crisis - 27th July 14
Wall Street Shadow Banking: You Can’t Taper a Ponzi Scheme: “Time to Reboot” - 27th July 14
6 Tips for Picking Winning Gold Mining Stocks - 27th July 14
Israel's War on Children, Exterminating the Palestinians Future - 27th July 14
Guilt By Insinuation - How American Propaganda Works - 26th July 14
Surprise Nuclear Attack On Russia To Liberate Ukraine - 26th July 14
Use "Magic" Of Gold/Silver Ratio To Greatly Increase Your Physical Holdings - 26th July 14
Derivatives Market Species Origins - Abuse, Props and Risks - 26th July 14
Stock Market Manipulation and Technical Analysis - 26th July 14
China’s Stock Market Finally Looks Like A Buy - 26th July 14
Ed Milliband Fears Israel Jewish Fundamentalist Gaza War Massacres Backlash - 26th July 14
The Big Energy = Power Battle Is Coming - 25th July 14
USrael - Zionists in Control of America's Goyim Brainwashed Second Coming Slaves - 25th July 14
More Weakness Ahead for Gold Miners - 25th July 14
Gold Price Strong Season Starts - 25th July 14
Geopolitics and Markets Red Flags Raised by the Fed and the BIS on Risk-taking - 25th July 14
Gold Lockdown Until Options Expiry - New Singapore Gold Contract Threatens Price Manipulation - 25th July 14
The Bond Markets, Black Swans, and the Tiny Spirit of Santo - 25th July 14
No Road Map For Avoiding The Future - 25th July 14
Israeli War Machine Concentrating Women and Children into UN Schools Before Killing Them - C4News - 25th July 14
Israeli Government Paying Jewish Fundamentalist Students to Post Facebook Gaza War Propaganda - 25th July 14
Why the Stock Market Is Heading For A Fall - This Time Is Not Different - 25th July 14
An Economic “Nuclear Strike” on Moscow, A “War of Degrees” - 25th July 14
BBC, Western Media Working for Israeli Agenda of Perpetual War to Steal Arab Land - 25th July 14
Ukraine: What To Do When Economic Growth Is Gone - 24th July 14
Stock Market Clear and Present Danger Zone - 24th July 14
The Five Elements to Creating a Something-for-Nothing Society - 24th July 14
Instability is the New Normal? - 24th July 14
Israel's Suicide Bombers Over Gaza - 24th July 14
EUR-AUD Heads Into The Danger Zone - 24th July 14
Tesco Supermarket Death Spiral Accelerates as Customers HATE the Mega Brand - 24th July 14
Ukraine MH17 Crisis - Best Remember Who Your Friends Are - 24th July 14
Three Reasons Why Gold Price and Gold Stocks Will Rise - 24th July 14
HUI Gold Bugs Fighting To Break Downtrend - 23rd July 14
What Putin Knows About Flight MH17 - 23rd July 14
Why Microsoft Will Continue to Rebound, Huge Upside Potential - 23rd July 14
Will Putin Survive? - 23rd July 14
MH17 Crash Next Phase Economic Warfare - 22nd July 14
The TRUTH about China’s Massive Gold Hoard - 22nd July 14
Forex Multi-week Consolidation in EUR/USD Ended - 22nd July 14
Bitcoin Price Medium-term Trend Being Tested - 22nd July 14
Beware Of The Flash Mob - 22nd July 14
Can Putin Survive? - 22nd July 14
Israel Assault on Gaza: A Historic Crime, Nazi Like Final Solution - 22nd July 14
Zionist Israel an International Pariah - 22nd July 14
Reflections on the Global Misery Index - 22nd July 14
GDP Economic Statistic : A Brief But Affectionate History - 22nd July 14
TransTech Digest: Super Battery Bio-Power vs. Dirty CleanTech - 21st July 14
How to Find Trading Opportunities in the Currency Markets - 21st July 14
Stock Market One More Pull Back - 21st July 14
The Conquest Of Real - Degenerate Philosophies of the Book - 21st July 14
A Clear Way to Profit from a Graying Population - 21st July 14
Last Chance Critical Financial Market Forecasts Special Total Access - 21st July 14
Stock Market Crash Nightmare! - 21st July 14
Why the Stock Market Is STILL Cheap - 21st July 14
From Gore-Bore To Gore-War - 21st July 14
Gold Price Looking Drab - 21st July 14
An In-Depth Look at Gold Chartology - 21st July 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Fed Impact on Stock Market Trend

Facebook IPO Facts - The Good, The Bad and The Ugly

Companies / Corporate News May 17, 2012 - 07:42 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleShah Gilani writes: Face it, you want it. It seems that everyone wants a piece of the Facebook IPO.

But, can you handle the truth? Will the hyped sensationalism be a boon or a boondoggle?

I'm not going to tell you what to do, whether you should buy Facebook sooner rather than later. That's up to you.


However, I will tell you that I won't be buying it right away, but, I will be buying it if...

First though, here's the good the bad and the ugly truth about the company, the IPO and owning "FB."

The Good News About the Facebook IPO

The good news is overwhelming if you're Mark Zuckerberg, any of the company's founders, executives, or venture capital backers, many of whom own Facebook stock (Nasdaq: FB) at a dollar a share.

So far, the target range the stock is expected to be priced at--which was originally $28-$35/share-- has been raised to between $34-$38.

And it could very well go higher before tonight's pricing deadline. The amount of shares to be floated is being raised too.

That's all good news for the insiders, the underwriters and the company itself.

FB is causing its own IPO hype, partly because it will be the largest IPO in U.S. history, in terms of the value it will put on the company, which will likely approach $100 billion. However, Visa in 2008 and GM in 2010 will have raised more money on their IPO debuts. (I know, calling GM's IPO a debut is strange to me too.)

Facebook will raise at least $13 billion (at the lowest end of the price and share offering range) and bank some $9 billion in cash on its balance sheet. That's good news.

But better than that, the company will now have a huge hoard of stock as currency to use to buy up companies and technology to advance its master of the social media universe status.

The other good news is that... The other good news is that the stock will become a must-have on many growth managers' buy lists. Frenzied buying by institutional money managers could push the stock higher on its opening day and shortly after.

In addition to initial institutional interest, in short order, FB-- because of its size-- will likely be added to the NASDAQ Composite and eventually the S&P 500 index.

While the NASDAQ OMX Group wants to include FB as soon as possible, it will have to wait the three months it has set aside for that to happen. As far as being included in the S&P 500, that will take at least six months and will probably require FB's "float" (the number of shares available to trade to the public) to exceed 50% of all shares outstanding.

The IPO will only release about 15% of FB's total shares, but more shares will be freed up after the 4-6 month "lock-up" period that restricts certain insiders from selling right away.

Whenever a company is added to a major index, its stock price usually rises because money mangers and index funds have to buy it to keep their portfolios in balance with their benchmarks.

But, be forewarned, the stock won't jump on the day it is added to either index. It will jump on the day of the announcement that it will be added.

The rest of the good news about the IPO and owning FB remains to be seen.

With its new war chest of stock currency, questions will abound about what Zuckerberg, who will control some 61% of the voting stock, will do to grow the company in terms of hires, acquisitions and technology advancements.

To me, the good news about owning FB is that it will be a giant among giants and I believe will change the nature of the Internet, commerce and our lives.

The Bad News About the Facebook IPO

The bad news about FB's IPO is all its hype. And that has me worried for several reasons.

In terms of market metrics, FB will come out saddled with high relative price/earnings multiples and high growth prospects. Both of those can turn around in a flash and disappoint investors in a big way.

As far as earnings, the first quarter of 2012 saw lower earnings than the first quarter of 2011. That's not a good start for the company's debut. Based on the expected price range and the company's valuation, the price earnings multiple looks to be around 100.

Of the 33 companies that have a market cap of more than $77 billion (the low end of the offering), only two, Amazon.com and Bank of America have multiples of 100 or higher. Amazon is its own story and Bank of America is so high because its earnings are so low.

Makes you wonder, doesn't it?

Then there's all the hype that accompanied LinkedIn (NYSE: LNKD) and Groupon's IPOs. LinkedIn had a PE of 200 when it came out, rose 31% its first day then fell by one third promptly. Groupon (Nasdaq: GRPN) has had to restate its financials and after a hyped IPO is trading two thirds of its IPO price.

Makes you wonder, doesn't it?

Then There Was the Ugly

So much for the Bad. The Ugly is worse.

It's May. The markets are in a state of decline. Any macro implosion in Europe (it's already happening) or China (its already happening) could take U.S. stocks lower and Facebook along with them.

If FB comes out of the cannon and shoots for the stars, it may well overshoot any safety net that sensible investors might expect is a floor where the stock could become a buy.

The really ugly scenario is that the IPO causes a massive influx of public investors to bid up the stock and have to then dump it hand over fist if a quick drop triggers margin calls or an out right panic exodus.

My money is patient. I'll be watching the show from the sidelines.

What's important to me is how the stock looks and "feels" in the days and weeks after the IPO. Face it, Facebook isn't going to trade at 200 times earnings any time soon, so don't expect it to double.

And about those earnings. Any time a company warns about its earnings BEFORE they go public, as Facebook just did, I'm going to be prudent and not someone's put option.

What will I likely do? I'll look to buy on any big dips, especially the ones that may come after the lock-up period expires and all those billionaires and multimillionaire insiders want to sell and bid up the price of mega yachts and Sand Hill real estate.

Face it; Facebook is going to be long story. I'm not in a rush to hit it at the top--especially when the top looks like where the stock is coming out.

Source :http://moneymorning.com/2012/05/17/the-facebook-ipo-facts-the-good-the-bad-and-the-ugly/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014