Tag Archives: Facebook IPO

Facebook IPO cont

Two years ago, it was more than apparent to any investor that Facebook would be a great investment. Luckily there is a secondary market to trade stock in non public companies. Companies like Facebook have been on that secondary market for years now. Anyone can go there, and with the company’s approval, buy stock.

Oh, there is one tiny catch. In order to buy any Facebook stock, you need a minimum of $2,000,000. That’s no problem, right? Everyone not on Wall Street has that in their sock drawer. Not quite. Basically, that secondary market is there to help make Wall Street richer. Not our clients, but us.

Over the past two years, I have personally sat down with over 10 different investment houses to buy some Facebook stock for myself before it goes public. Each one has demanded that I turn over all the assets I currently have in investments over to them. They would not give any consideration to someone who wasn’t already on their client list.

As I said in the prior Facebook IPO post, this is a great long term investment. Even some of the biggest players on Wall Street are having trouble getting their hands on it before Facebook goes public. Why? Because firms are only selling shares to the biggest fish they have to keep them happy. The big fish pay more in fees over the year. Why would Wall Street help a single mom with two kids scraping by, when we can help a billionaire who pays millions in management fees each year. Seems fair, doesn’t it?

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The Facebook IPO

Facebook is going to be publicly traded in May.  Whether you agree with it or not, it will be the most oversubscribed IPO since Apple first came public.  What does that mean? It means that if Wall Street prices it out at $40 per share, Facebook’s first trade will be around $80-$85 per share.

Now don’t get me wrong, the numbers and projections make this stock still look cheap at that price in five more years.  Actually, I think this is a once in a generation stock offering.  Finally a stock for the every day person to buy, hold for five to ten years, then sell for a hefty profit.  Don’t forget the Wall Street games though.

First, Goldman Sachs has been selling shares of Facebook to their clients in Europe for about a year now.  Meanwhile, you haven’t been able to buy Facebook at all.  How can they do it?  Because the laws aren’t the same internationally.  Goldman Sachs is using it to grow their client base, and charge more fees, while they take advantage of being bigger and more powerful than you.

Also, what I see happening is a bit of a honeymoon period with Facebook’s IPO.  The stock will soar right away.  After a few days, or even a few weeks, you will see a correction downward in the stock price.  Why?  Wall Street knows that the individual investor wants this stock, and they want it bad.  So they will ride some of the move up before pulling the rug and cashing in their profits.  When that happens, the stock will pull back.  When the stock starts to pull back, people will panic sell.  Wall Street will try to explain that the stock is too expensive on current earnings.  The stock could lose upward of 20-30% during this period.

What Wall Street won’t say, until the stock starts bouncing back up, is that they don’t care about current earnings.  They don’t care about current earnings for most companies.  What they care about are future earnings.  With roughly $6 billion in revenue projected for 2012, and $20 billion in revenue by 2014, the stock will be extremely cheap after the 20-30% pullback.  Wall Street will jump on this as hard as they have jumped on Apple in recent years.

Do not be fooled when Facebook starts pulling back.  Its a great company, solid revenue with a limited monetization model, and phenomenal earnings and growth potential.  Ten years from now, you will kick yourself if you didn’t buy this stock.  Wall Street is going to try to make you think that this stock is just a flash in the pan.  Don’t be fooled.  They’re just looking for yet another way to screw you, and allow themselves a chance to make even more money.

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