After Doing some research I have changed my prediction for facebook.. I have come across linkedin's shares which have a P/E of 1600x.. This is insane but implies that fcbk is not too relatively overvalued.. But we are definitely in a bubble that WILL burst¡¡

mark zakarburg spotted . ati this is they guy whose a billionaire ...nkt ...lol

@QW techies don't typically engage in gross displays of wealth. Leave that to marketing/ sales/ finance people.

@Nabwire From your posts I'm guessing you live and work in the states therefore you would be more informed on how foreign investors can be part of the IPO. With our sister company Winton Investments Limited, they are using their international contacts in Europe to find ways of getting into the IPO. The most probable will be to get interested parties on a platform (Generali, Skandia, etc) that has access to funds that have already invested in Facebook shares. I agree this will be quite pricey not from our end but fees payable to be part of that platform are quite high. It all comes down to the numbers if Winton will proceed with their intended strategy. I should say I don't work for Winton therefore I do not know the nitty-gritty, please send your queries to info@winton-investments.com for clarification.
I am an employee of Genghis Capital Limited. We are a stock brokerage firm located in Nairobi that emphasises on relationship-brokerage. Please visit our website on www.genghis-capital.com and we do have products and services for Kenyans in the diaspora. Any queries please send to info@genghis-capital.com.
Out of curiosity why won't you get into Facebook? Are you thinking it's another bubble stock?

The Details behind the Facebook IPO

Here's what I've learned from Facebook's S-1.

Some of the data points buried in the IPO document are eye-opening, to say the least.

Chief among those are Facebook's assertion that 6% to 7% of the entire world population logs in every day. More importantly, they stay logged in for a significant amount of time.

However, what will happen in the future to drive the stock's share price after it's brought to market is buried deeper in the details.

It's these details that make Facebook's IPO a hold if you already own shares, but also a "wait to buy" if you are like most people and want to own them.

In a nutshell, what I've learned is the banks are bringing Facebook to market fully priced.

My opinion is the bankers have gotten greedy and decided to push the valuation numbers above the levels that I believe are sustainable.

The company is being valued at $75 billion - $100 billion dollars at launch. This would make it one of the most valuable companies in the world, yet its actual revenue, let alone profitability, is at a more mundane level.

Currently, Facebook is reporting about $4 billion in revenue and profits of $1 billion.

That means if Facebook prices in at the top of its estimated range ($100 billion), based on current disclosures it would have a 100-to-1 price to earnings (P/E) ratio.

In other words, it's only going to take about 100 years for Facebook to eventually earn what it may price at. Compared to other blockbuster stocks, that's quite rich.

By comparison, Apple Inc. (Nasdaq: AAPL) has $100 billion in cash and a P/E ratio of 11 while Google's P/E is 20.

That's why it's time to "Hold" Facebook (**) or wait to buy it until insiders get a chance to sell their shares and bring the price down to levels common people can realistically afford to purchase.

By Jack Barnes, G.M.T Specialist

In a way I see where he's coming from but don't forget that 8yrs ago facebook had nothing and it's still growing. I think an IPO is an invitation for people to buy into the future prospects of a company early and at a discount and that's why I would never buy into Britak. I think the future is bright for facebook especially in targeted advertising as they have a lot of information on your likes and dislikes and that's where the trillion$$ advertising market is headed.

@Harrydre,

This kind of analysis expose people's line of thinking, first you have to see facebook from a business standpoint and think about the opportunity facebook have, that way you'll arrive at facebook future.

Now lets see, what will $5 billion do to facebook? Imagine what you'd do if someone handed you $100,000 to add into you small business! with $5 billion facebook will tranform itself into possibily one of the greatest tech company, it will be able to expand it's business online and possibily drive alot of online businesses out of business, Amazon could be gone in a few years, even neflex, travelling site, name them, think about it strategically!

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Home > Investments > Facebook IPO–Is Social Media a Viable Investment Option?



Facebook IPO–Is Social Media a Viable Investment Option?



16

Posted in Investments , Stock Market
January 31, 2012




By Beth McKenna

**Update: Facebook plans to file to go public tomorrow morning. Find out if investing in this online company is a good idea:

Original publish date: December 7, 2011

Wall Street will likely soon be partying like it’s 1999 as social media giant Facebook is reportedly planning an initial public offering (IPO) in 2012, according to The Wall Street Journal. The hotly anticipated IPO could raise as much as $10 billion in an offering that would value Facebook at $100 billion.

Facebook’s IPO: The Largest Internet Company IPO EVER

Most companies explore going public when they generate about $100 million in annual revenue. Facebook is on track to amass over $4 billion in revenue in 2011. Given this fact and the company’s expected valuation, the size of Facebook’s IPO is not surprising.

Some facts about Facebook’s anticipated $10 billion IPO:
•Largest internet or technology IPO globally EVER
•4th largest IPO by a U.S. company
•13th largest IPO globally

As a point of comparison, a $10 billion Facebook IPO would be over seven times as large as Google’s $1.4 billion IPO in 2004. If the Google IPO frenzy is any indication, Facebook’s IPO should generate near-hysteria among Wall Street and some investors.

Facebook’s IPO date is expected to be in the April-June 2012 time frame, though there is some buzz that it could occur earlier. The price (or price range) of stock shares is set when a company registers its IPO, so the price is not yet established.

Facebook Joins Internet Company IPO Boom #2

With its anticipated IPO, Facebook joins the latest round of internet companies going public. While this latest round isn’t as large–or manic–as the dot-com tech bubble of the late 1990s, it certainly constitutes a mini-boom.

Sizeable internet company IPOs in 2011 include:



Pandora Media (P)

Pandora, based in Oakland, CA, operates as an internet radio company. Pandora’s IPO on June 14 raised $239.4 million in an offering that valued the company at $2.6 billion. Pandora sold 14.7 million shares for $16 each.

LinkedIn (LNKD)

LinkedIn, based in Mountain View, CA, operates an online professional network. LinkedIn’s IPO on May 19 involved 7.84 million shares of stock sold at $45 a share, giving the company an initial market value of about $4.3 billion. The stock soared on its first day of trading, closing at $94.25, making the company worth $8.9 billion.

Groupon (GRPN)

Chicago-based Groupon sells internet coupons and is the global leader in “daily deals.” Groupon’s IPO on November 4 raised $700 million in an offering that valued the company at almost $13 billion, making it the largest IPO by a U.S. Internet company since Google raised $1.7 billion in 2004. Groupon sold 35 million shares at $20 each. The stock opened at 28 and closed at 26.11 on its first day of trading.

Facebook’s Rise to #1 Social Media Site

Facebook’s rise has been meteoric, with the company starting in 2004 in CEO Mark Zuckerberg’s Harvard University dorm room and growing to the dominant social media site it is today. It currently has 800 million total users, 700 million monthly users and 500 million daily users.

As this list shows, FB is solidly #1:

Most Popular Social Media Sites* (by est. unique monthly visitors)
1.Facebook: 700 million
2.Twitter: 200 million
3.LinkedIn: 100 million
4.MySpace: 80.5 million
5.Ning: 60 million
6.Google Plus+: 32 million

* This ranking uses average of global traffic rank + U.S. traffic rank, and was last updated Dec. 1.

Facebook’s Financials

Facebook isn’t required to make its financial results public (It will be required to do so by April, because it will cross the 500-shareholder limit by the end of this year). However, there are good estimates available.

Revenue

Facebook will generate revenue of $4.27 billion this year, according to Bloomberg, citing data from research firm eMarketer. Approximately $3.8 billion, or 89% of total revenue, will come from advertising. The other 11% comes from other sources, most notably gaming developed by its partner, Zynga, the creator of Farmville. Ad revenue growth is up 104% from $1.86 billion in 2010.

For 2011, Facebook will have about a 16.3% share of U.S. internet display ad revenue, and that number is expected to grow to 19.5% in 2012.

Profit

FB generated about $1.6 billion in revenue in the first half of 2011, while its operating income and net profit margin were reportedly $800 million and $500 million, respectively. Thus, operating and net income percentages were about 50 and 31, respectively.

These are SOLID profitability numbers. How do these numbers stack up against some heavyweights like Apple and Google?

A company’s profitability is best compared to others within the same industry, but Facebook has no direct peers that are public companies (Twitter is a private company) other than LinkedIn (to some degree), and LinkedIn has only recently gone public. With this caveat in mind, here is the comparison:






So Facebook Stock Looks Like a Great Investment, Right?

Hold on! While Facebook’s operating and profit margins above look good compared to Apple’s and Google’s, it’s important to keep two major factors in mind:

Valuations. Apple’s stock is trading at a P/E (price-to-earnings) ratio of 14 and Google’s at a P/E of 21. These stocks are reasonably priced given their growth rates (54% and 26% quarterly earnings growth, respectively).

The price for a share of FB stock won’t be determined until the company registers its IPO. That said, you can be sure the stock will be pricey on a P/E basis–IPOs usually are, especially hotly anticipated IPOs.

Business Plan. Additionally, both Apple and Google have business plans that have high “barriers to entry.” This means that other companies can’t easily set up shop and compete with either company. The same does not hold with Facebook.

Sure, it is THE dominant social media site by far, but look how quickly it grew from zilch to its current status. Also, keep in mind how quickly MySpace went from #1 to much lower in the heap.

Social media companies, as they derive most to all of their revenue from advertising, have low barriers to entry. The next Mark Zuckerberg could be coming up with the next Facebook in a college dorm somewhere as I type. Additionally, social media is akin to fashion and retail clothing–very subject to consumers’ fickle whims.

Facebook IPO: The Bottom-Line

Buying stock on the day of an IPO is usually NOT a good idea unless you are well connected and among the lucky few who get offered a chance (by the investment banks underwriting the IPO) to buy at the IPO price.

I believe a common misconception is that anyone can buy at the set IPO price. This is far from true. This is why articles touting how much a stock is up or down since an IPO are largely meaningless.

For example, LinkedIn shares were priced at $45, but they opened at $83. An investor interested in buying shares at the market opening on IPO day bought them at about $83.

In fact, he/she would have been lucky to pick them up at $83, as they soared to a high of $122.7 before closing at $94.25. At the current price of $67.89 per share, investors in LinkedIn have lost money unless they were among the select few who got shares at the IPO price.

Likewise, Pandora’s IPO was priced at $16, but the stock opened at $20 on IPO day. Thus, the true loss to most investors is greater than that stated in my chart above.

It’s likely best to wait until AFTER IPO day to decide whether you want to buy Facebook stock. You’ll be able to determine the valuation of the stock at the end of the first trading day. You’ll also be able to see if FB uses some of the boatload of cash its IPO will generate to make acquisitions to grow its non-advertising revenue. In my opinion, it needs to do just that.



Its notable that all the major investment banks were clamoring to be the underwriter, but like the article says you have to be an insider to get the introductory price. I will sit this one out and hope that the price comes crashing down ( highly unlikely) so I can buy. Lets wait for their numbers in April

#$140hencethenamebroker..surprised at the inabiltiy to see the co-relation..anyways a few weeks ago there was the CES tradeshow in Las Vegas the worlds largest consumer electronic tradeshow and all, i mean ALL companies from Samsung to Sony to Kodak showcased wares based on Future trends on this case Social trends and they were all itching as it seemed Apple is getting into the TV market and we all know what they can do. So the $100b question, did all this companies gamble on a trend that will 'burst' in thee coming future...?? or are we all fixiated on the P/E..

If Facebook does return like the Westport Innovations (WPRT) stock did in 2011, then I'll pinch myself very hard for avoiding it...

@mainat - check out westport and others that are in the same biz. Lot's of juice to go

@nabwire - you can also check out on this tip. Don't buy now, wait for a pullback back to $25 - $32 zone.

Fracking stocks will outperform S&P 500 many times over this decade.