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Facebook IPO Approaching: Will You Buy Shares?

This article was written by in Investing. 14 comments.

A few weeks ago, a Consumerism Commentary reader asked me on Facebook whether it would be a good idea to purchase shares of Facebook at $48 a piece. I do not give stock buying advice, but I mentioned that shares had recently been sold for $44.10 on the secondary market, so if someone were to accept an offer to buy shares at $48, they’d have to believe that the value had increased since the auction.

Interest in buying shares of Facebook has increased as rumors about the company’s going public continued, and when Facebook finally filed for its initial public offering (IPO) in February, shareholders (mostly company employees and investors willing to buy in the secondary market) celebrated. The company now plans to become a public company on May 18, though that date is somewhat flexible. Also flexible is the target range for the initial share price when the company goes public.

FacebookFacebook has set its open share price to be between $28 and $35. With the shares Facebook’s famed CEO, Mark Zuckerberg, plans to sell at the opening, he will personally cash in $1 billion, while the company raises at least $12 billion through new shares. The total valuation of the company could lie anywhere between $75 and $98 billion, according to CNN Money.

There is no doubt that Facebook is the biggest success story in technology in this century so far. Those who invested early, friends of Zuckerberg since the beginnings of the company and employees who received significant amounts of stock options, stand to be able to cash in their shares and retire pleasantly wealthy. Those buying shares on or after May 18 may be able to catch a star continuing to rise.

Google continued to perform well after its IPO, for example. Investors were concerned about overpaying for Google shares at about $100 around the time of that company’s initial public offering, but today’s price is over $600. Facebook’s shares will be sold at a price-to-earnings ratio of 99, higher than almost all companies in the S&P 500 index, making the investment seem to be at a high risk for its price to fall. Both Zynga and Groupon, after going public last year, are now trading below their initial share prices.

Are you planning to invest in Facebook’s common shares once you can buy them through the stock exchange? Has Facebook seen its heyday of growth or is there more to come from the company?

Update: Although average individual investors have traditionally had limited access to initial public offerings, Facebook, following a trend of other technology companies going public, will likely be opening its IPO up to E*Trade. If you have an E*Trade account in good standing, you can indicate how many shares of Facebook you would like and the maximum price you’d like to pay. E*Trade will distribute the shares it receives among its individual investors who bid high enough.

Photo: kudumomo
CNNMoney, BusinessWeek

Updated May 30, 2012 and originally published May 4, 2012.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 15 comments… read them below or add one }

avatar 1 Anonymous

I’d say there is a 90% chance that the shares will fall, 5% chance the shares will do okay, and 5% chance that they will take off and do insanely great.

Technology IPOs are great for VC firms, founders and employees. Not so much for stock investors.

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avatar 2 Ceecee

I have always heard that it is very difficult for the average investor to purchase IPO shares in the early stages, before they take off. That privilege is reserved for the “big guys.” It would be a good investment if you think it will continue to climb over the long haul. That, of course, is anybody’s guess.

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avatar 3 Luke Landes

That’s true. Not everyone will be able to be in the elite group of actual IPO buyers. But the shares will be available to the public immediately following the IPO, and that’s what I’m really referring to when I asked about buying shares. There will surely be many people scrambling to buy as soon as they are able, and they won’t receive the actual IPO price.

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avatar 4 wylerassociate

I am definitely going to buy shares in Facebook when they go public soon. I still think there is growth in facebook.

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avatar 5 Anonymous

I am not going to invest in Facebook. The company has grown so rapidly, and there have been so many social sites that have failed that I don’t trust the longterm growth (even though I am on Facebook several times a day :))

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avatar 6 Anonymous

I buy all my IPO’s once they start trading. I have a feeling if this is priced @35 the first trade will be around $70, good for the initial holders. i’ll look at how it’s trading and might take a one day ride and sell. the market is really looking for a homerun stock-this could be it. How about you Flexo-do you buy in the secondary market?

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avatar 7 Anonymous

IPO … Imaginary Profits Only.

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avatar 8 qixx

Facebook i feel will be overvalued once the shares hit the market. The real question is will Warren Buffet buy shares of Facebook once they hit the market. Anyone that can actually get the IPO purchase and then turn around and sell on the market i think will make a decent profit. I expect that Facebook share will balloon initially and will drop a bit after the initial hype wears off (probably in a few weeks).

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avatar 9 Anonymous

I think I’ll stick to my dividend stocks paying +10%.

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avatar 10 Anonymous

I think Facebook’s peak growth is behind it, and in the long run you will find that the prices of the IPO will be overvalued.

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avatar 11 Anonymous

I have not seen any changes with Facebook recently, except for the timeline. Despite this, I will still buy a few shares to see how it will work.

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avatar 12 Anonymous
avatar 13 Luke Landes

I updated the article above to indicate that customers of E*Trade — individual investors — will have access to Facebook’s IPO.

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avatar 14 Anonymous

Facebook … a company that recently paid one BILLION dollars for Instagram, a company which earns no profit. No thanks.

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avatar 15 Anonymous

I do think it’s cool that E*Trade is able to offer customers a chance to buy into the IPO if they wish. I interned at a stock brokerage and I always thought the IPO game was so rigged. However, while I applaud Facebook for opening up its investor pool, I can’t help but think about how many people are going to buy the stock because they love the product, rather than doing so because the business makes sense as an investment.

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