FACE BOOK IPO

FACEBOOK’S IPO : HOW MUCH IS THE MARKET WILLING TO PAY FOR IT ?

ON FEBRUARY 1ST THE SOCIAL NETWORK ANNOUNCED PLANS FOR AN INITIAL PUBLIC OFFERING THAT COULD VALUE IT AT BETWEEN $75 BILLION AND $100 BILLION.

A $100 BILLION PRICE WOULD  HARDLY BE CHEAP, BUT OTHER TECH GIANTS ARE WORTH MORE : GOOGLE’S MARKET CAPITALISATION IS $190 BILLION, MICROSOFT’s $250 BILLION AND APPLE’s $425 BILLION.

AS WE KNOW, A PRINCIPAL OBJECTIVE OF THE COMPANY UNDERTAKING AN IPO IS TO HAVE A LIQUID MARKET ONCE THE OFFERING IS COMPLETE.

A LIQUID MARKET IS LOOSELY DEFINED AS ONE WHERE INSTITUTIONS, SUCH AS MUTUAL FUNDS, FEEL THAT SUFFICIENT SHARES ARE TRADING SO THAT THEY CAN BOTH BUY AND SELL BLOCKS OF STOCK WITHOUT ADVERSELY AFFECTING THE STOCK PRICE.

THE KEY ADVANTAGES OF PUBLIC OWNERSHIP INCLUDE THE FOLLOWING :

  1. ADDITIONAL FUNDS TO SUPPORT GROWTH OF THE FIRM.
  2. LIQUIDITY TO THE OWNERS.
  3. ACCESS TO ADDITIONAL FUNDS FOR THE FIRM TO SUPPORT CAPITAL-EXPENDITURE PLANS.
  4. THE ABILITY FOR THE FIRM TO USE STOCK OPTIONS TO ATTRACT AND KEEP GOOD MANAGERS.
  5. ADDED CREDIBILITY WITH CUSTOMERS AND OTHER CREDITORS.

AS WITH ANY RESTRUCTURING, AN IPO IS NOT WITHOUT COSTS AND CERTAIN DISADVANTAGES. THESE INCLUDE THE FOLLOWING :

  1. A REDUCTION IN THE CONTROL OF THE MANAGEMENT OF THE FIRM.
  2. COMPETITORS GAIN ACCESSS TO THE OPERATING AND FINANCIAL DATA OF THE FIRM.
  3. THE TRANSACTION COST OF ISSUING THE IPO IS USUALLY SOMEWHERE BETWEEN 1% TO 3%.
  4. THE COSTS OF BEING A PUBLICLY TRADED FIRM.

  •  OUR RECOMMENDATION :

A SIMPLE TRADING RULE IS THAT IF IPOs START SELLING BELOW THE OFFER PRICE ON THE FIRST DAY OF SETTLEMENT, YOU SHOULD STOP BUYING THEM…AND IF YOU ARE UNABLE TO ACQUIRE THEM AT THE OFFER PRICE, THE DECK IS STACKED AGAINST YOU !

PHLDUCX