Facebook, the company that boasts 526 million users who check in daily (and 901 million who log on once a month) is set to go public this Friday.
If you haven’t been able to get any shares at the IPO pricing (estimated to be from $34 to $38), it’s probably too late. If you were shut out of the IPO, should you buy shares once it goes public?
- 1. Shares will probably be more expensive— Facebook and its early investors are selling more than 337 million shares. Among last year’s hottest IPOs, Groupon Inc. gained 31% on the first day of trading. Zillow, Inc. jumped 79% and LinkedIn Corp. more than doubled. The average IPO trades up about 11% on the first day.
- 2. Shares Could be Volative—Consider Groupon—went public at $20 a share 6 months ago, soared as high as $31.14 on first day and is about $14 now (up from about $10 on Friday’s close).
- 3. Understand Why You’re Buying It If You Do— CEO Mark Zuckerberg will still control 57% of company. Stock is considered richly valued by some analysts—trading at 70 times projected 2012 earnings and 18 times estimated revenue of $5 billion (vs. for example, Google at 15 times earnings and 6 times its revenue even though it sells at $610 per share)
- 4. How Does Facebook Make Money?— Currently charges for advertising that ends up on pages and takes cut of revenue generated by games. Zynga contributes to Facebook’s revenue.
- 5. How about Mobile?— Facebook is already saying the move to mobile could be a challenge. They’ll work on this, plus look to add apps to site.
- 6. What About Instagram?-- Zuckerberg decided to buy Instagram for $1 billion even though the company doesn’t have any revenue. It’s unclear what he wants to do with it, though it shows he wants to move into mobile.
- 7. In the End, Make Up Your Own Mind— Remember, buying stock should fit into your overall investment goals, even if its Facebook stock
Cathy Brown -- Your Financial Advisor