A recent Associated Press poll says half of Americans feel the price for shares of Facebook, the popular social network that's set to go public on May 18, are too high. On that date, Facebook will likely be the largest Internet initial public offering ever, with the potential to hit Wall Street valued at $100 billion. That would make it worth more than Disney, Ford and Kraft Foods, the Washington Post points out.
Facebook certainly has some strong numbers to back up those predictions. More than 900 million people worldwide are Facebook users. In the first quarter of 2012, the social networking site earned more than $1 billion in revenue from advertisements. It earned $3.7 billion in total in 2011. But investors are still weary. According to the same AP poll, 58 percent called the stock overvalued, with only about 30 percent calling the share prices fair. Shares of Facebook are expected to start between $34 and $38.
In the past week, Facebook has been called a passing fad. It's also being described as a thrill ride by investors. Gerry Sparrow, manager of a St. Louis investment firm said he would caution investors to wait on picking up shares.
"I wouldn't buy yet," he told St. Louis Today. "The average IPO goes down after it goes public. I would wait at least 30 days, or until the next earnings announcement, to see how it trades."
But investors don't want a repeat of the Google IPO, where shares started at $85 and now trade at more than $600. It should be noted, however, that Google earned more than 12 times as much as Facebook in 2011. Barron's, one of the top-read investment publications, says investors should skip the Facebook IPO on Friday, which is being called the "most eagerly awaited initial public offering ever." The financial website says Facebook's biggest challenge is finding a way to monetize its growing number of users who access the site on their mobile devices.
"This is no small problem," Andrew Bary writes. "A comScore report last week showed that U.S. Facebook users spent more time on the site in March using mobile devices than they did using PCs."
While that certainly is a problem, the hype built around this IPO could still be worth buying into. In fact, some analysts are even saying its worth an IPO penalty to invest in Facebook and then sell in less than 30 days. Most major brokers have rules in place that if you sell your shares in less than 30 days after an IPO, you could be held out of other IPOs for a minimum of six months.
Like the AP Poll, the success of the Facebook IPO is 50-50. But if it doesn't go as well as expected on opening day, other Internet companies, like LinkedIn, Groupon and Yelp could be in trouble. Carlo Panaccione of Navigation Group, a nationwide financial firm, told Bloomberg that those other Internet stocks could deteriorate. He said the fear is that Facebook is going to be priced more than its worth.
"Couple that with the fact that we had a rough summer last year and you see these spikes in the options trading," he said. So according to many analysts, it might be a good idea to not "like" this initial stock offering.
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