There’s been an awful lot of speculation
lately that with the Social Networking giant Facebook going public the company
will create a lot of millionaires and in the case of the company’s early
investors and management, billionaires. However
speculation isn’t always a good thing, a few industry analyst have been
offering words of caution. Allan Sloan
of Fortune magazine points out that because the company is looking to raise $5
billion and the valuation is in the neighborhood of $100 billion there will be
an extreme demand for the stock and a very limited supply therefore jacking up
the price beyond it’s true value.
Sloan says “there are all sorts of
rationalizations for having such a small public offering relative to a company’s
size, the real reason, as any Street insider will tell you, is to create an
initial shortage of stock so that the share price runs up when public trading starts.”
Eric Savitz of Forbes magazine offers a
similar word of caution, “Assuming Facebook comes public at a $100 billion
market cap, the stock will debut at 27 time last year’s revenues and 100 times
trailing profits. By either measure, an
ethereal valuation.” The consensus seems
to be that the price will see a massive inflation and perhaps the bubble will
burst and bring investors back down to reality.
With the IPO looming around the first weeks of May, those wishing to
invest and those already invested will be getting pretty anxious.
After
reading a few articles on this for myself I’m feeling rather Bearish and will
be very skeptical of massive price hikes and what have you. I think other companies like Apple (AAPL) or Microsoft (MSFT) might present some interesting opportunities,
while Facebook takes the spotlight these could be the real deal.
4 comments:
I agree that the public as a whole must be very cautious when investing in Facebook stock. The share price will be ridiculously inflated given the promise of huge profits Facebook holds. On the other hand, Facebook stock could really be worth the lucrative amounts. With the amount of traffic going through Facebook and the ease to make anything on the internet go viral, companies will pay huge sums to put their ad on the site, the most lucrative way Facebook makes a profit. However, ultimately, I don't think that Facebook will be the biggest thing for the next century as something new is bound to come along. Nevertheless, for the time being, investing in the massively inflated stock and selling when the time is right may be a wise move that will bring in a tidy bit of profit.
As Sophia alluded to, Facebook is a fad. It is a lucrative fad, but in the end, a fad. Obviously, if you can get your hands on some Facebook stocks, it would probably be beneficial to your bank account, but people should also be wary that the next new thing could blow Facebook out of the metaphorical water. Back in 2006-2007, many people though Myspace was the new hot thing, but then Facebook came along. I'm not saying that Facebook is going to die off soon so the stocks are something that should not be given attention, but that basically what Will said about the hype being a factor in driving up the prices and when Facebook's hype decreases, so will the stocks.
I agree with Dustan and Sophia. The fact that prices will be inflated would be bad enough, but when added to the fact that Facebook's popularity is bound to fall, and fall fast, at some point, buying stocks in Facebook is a risk which buyers needed to be very wary of.
Having never traded stock or spent extensive amounts of time following the stock market, I thought this was a fairly interesting point about highly anticipated IPOs that I hadn't ever considered. I never thought / realized that hype over a company's profitability could drive up the share price to the point of creating an inevitably bursting bubble, but now that Will brings it up I think it's a very valid point.
On a somewhat related tangent, one of our robotics team mentors told us about a job offer he had at Facebook back when the company was first taking off, and how had he taken it (and the stock options) he would be a multimillionaire now. The what-ifs in these sorts of situations are kind of mind-boggling to me. But back to the post. Considering the inflation issue and huge demand for anticipatedly hugely successful Facebook stock that will eventually burst, I think it's up for another bout of "darn" / "should have" / "what if" type situations. Google, Apple, and now Facebook. Gotta catch on early.
Post a Comment