As of tomorrow, we can all buy a portion of the great Facebook! It will trade on the NASDAQ under the symbol FB. I will talk about stocks from time to time here, but please remember that you shouldn’t invest without having an understanding of your risk tolerance, talking to a financial advisor or at least buying a book.
While there is much excitement surrounding the IPO (initial public offering) of Facebook, there are just as many skeptics. Most say that the price of $38 per share will be too high and it will be even higher by the time we are able to buy it at 11:00 am EST.
Analysts are looking at companies like Google and Apple claiming that their P/E ratios are much more attractive than Facebook’s. Well DUH! These are 2 very strong, proven companies that can stabilize a portfolio, but some of us aren’t just looking at our 401K’s. I think the analysts should be asking who could be the next company to reach these levels, not comparing them. Less than 20 years ago, Apple’s stock was worth about $15.
If I’m comparing Facebook to another company, I would compare it to LinkedIn, which trades at $104 a share, approximately 700 times earnings. Facebook seems to be the more popular company and I would think if LinkedIn can trade that high, then so can Facebook. I would compare it to Amazon as well, which has always baffled analysts as to how it sells so high (184 times earnings).
I believe Amazon is successful because it’s where we always go to shop. It is the Walmart of online shopping. To me, Facebook is the Walmart of Social Networking. While I am a member of LinkedIn and Twitter, Facebook is the site I visit many times daily. There are 900 million others who do the same.
To me, the wildcard with Facebook is Mark Zuckerberg. Some are betting against him because he is young and won’t know how to monetize Facebook, but I think the skeptics are just giving him the fuel he needs. Zuckerberg reminds me of Steve Jobs in that when someone tells him something can’t be done, he finds a way to make it happen. Can Zuckerberg become a negotiator like Jobs? I think he will.
I am concerned that Facebook may be a fad. Just 10 years ago we were all about AOL Instant Messenger as a means to communicate. I have already noticed many people moving to Twitter. You see “tweets” on the bottom of television screens from people talking about the show or celebrities’ “tweets” as news stories. You rarely hear about updates on a Facebook status. While it is a concern, I don’t think people will leave Facebook for a long time.
So should you buy or not? I think it’s fair for you to determine a price comfortable to your situation and try to buy Facebook. I wouldn’t pay more than $50 per share on Friday though because investor confidence is so low. Investors are afraid of having another “bubble burst.” Facebook may drop, but should recover. IPO’s are always tricky. They can make you rich or lose everything you invested. You have to go with your gut and invest at your own risk. My gut says less than $50 is a good price for Facebook. If it goes higher, keep watching and wait for it to drop.
You may also want to look at companies that will benefit from the IPO. All markets should be up tomorrow with excitement. Now may be a good time to buy Morgan Stanley because it’s one bank that managed the IPO. Zynga should also see a nice pop as its games are on Facebook. I don’t recommend Zynga for long term, but if you are a day trader looking to make a few bucks, it could be worth a look.
I hope everyone makes money on Friday! Good Luck!