Will you apply for this decade most anticipated IPO of Facebook?

February 7, 2012   ·   0 Comments

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Facebook, the world’s most popular social networking site with an estimated 845 million active subscribers, has turned eight 2 days back. Since its http://stockssavvy.comlaunch on February 4, 2004 at Harvard University in Mark Zuckerberg’s dormitory room, the social networking giant that has changed our lives over the years has witnessed massive growth.

Initially before it’s public launch, it was called ‘thefacebook.com’. However, on February 4, 2008, Zuckerberg renamed to domain name and launched what we know today as ‘Facebook’. It now seems almost impossible to imagine life without Facebook status updates, friend requests, relationship statuses or photo tags.

The company has filed for an initial public offering (IPO) on February 1, 2012, seeking to raise $5 billion. It’s the year’s hottest initial public offering, but some wealth managers find themselves having a hard time recommending Facebook to their clients.

 

Valuation of Facebook IPO:

And a $100 billion valuation for Facebook at the top end – while huge in absolute terms – is not that out of whack in Silicon Valley IPO tradition. Facebook is seeking a multiple of up to 27 times annual revenue, or up to 100 times earnings.

 

Comparison of Facebook IPO Vs Peers such as Microsoft, Google & Apple

The world’s biggest social network is expected to seek a $75 billion to $100 billion valuation in its IPO, the most anticipated stock offering from Silicon Valley since Google Inc went public in 2004. To be sure, most technology analysts would argue that Facebook’s growth potential far exceeds that of Microsoft Corp , whose stock has largely traded between $20 and $30 in the past decade. It is taking its first steps toward content streaming for instance, and has yet to make a serious overseas thrust.
Apple Inc – today, the world’s most valuable technology corporation – went public at a valuation of just $1.19 billion in 1980, equivalent to 25 times revenue and 102 times earnings. Google – to which Facebook is most often measured against in terms of potential – was valued at $23 billion at the time of its 2004 debut, or 218 times earnings.

But the sheer size of Facebook’s valuation means that it will have to become the world’s first $700 billion company if it is to replicate the gain in Google’s stock.

“At these valuations, investors really need to set aside emotion…and invest with their heads,” said Edward Reinhart, managing partner at Capital Advisors Wealth Management, who owns Facebook shares bought on private markets two years ago.

 

Facebook shares are likely to pop on the first day of trading. Investors won’t get the full benefit unless they are among the few privileged clients of underwriters, Morgan Stanley the lead among them, who can buy at the offer price. Still, investors who want a stake in the dominant social media company will have options.

LOOK FOR FACEBOOK FUNDS

It is easier to buy funds that own stakes in Facebook than to hope an order for individual shares will be filled early on the IPO day.  A batch of funds from T. Rowe Price will offer one chance, though muted, to benefit from the expected first day pop in the stock. The company revealed last year that it had purchased Facebook’s private shares, traded on private markets, at an initial price of $25 per share.

The stake, now worth an estimated $408 million, is spread across 19 funds. Investors in each fund will profit from the IPO, though the fund’s overall performance still depends on other companies in each fund.

The Media & Telecommunications Fund (PRMTX) has the largest stake in Facebook, about 1 percent of its total assets. The $1.9 billion fund, which has outperformed the Standard & Poor’s 500 by an annualized 9.9 percent over the last 10 years, charges 84 cents per $100 invested.

Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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