Recommendation: Facebook‘s (NASDAQ:FB) $38 IPO price was based on subscription interest, not long-term fundamentals. Look for Facebook’s valuation to eventually come in line with other tech giants based on true growth rates. We recommend allowing FB to come down 30% from the IPO price before timing a new entry. Traders at the $26 per share level could see a bounce similar to what we have seen with recent IPOs once the hype has cooled off. A situation like that represents a reasonable risk/reward trade-off.
Writing about Facebook as an investment is a risky business, not only because it’s so soon after the IPO and its manic introduction but because offering opinions on it right now is like dangling meat scraps to rabid wolves — with you as the meat. It’s tough to find neutral opinions about the company, its way of doing business or its impact on users’ lives. With FB’s public debut serving as such a lightning rod, perhaps it’s advisable to follow the rule of thumb when discussing politics or religion: better not to bring it up in polite company.
But not here. Call it a masochistic streak or a numbness to the risk, but the new issue is garnering, and demanding, too much attention to not offer a bit of commentary. Many brokerage firms are talking about the FB IPO as one of the first signs of life from average retail investors since before the 2008 crash. It had one of the highest rates of retail interest of any IPO, with well north of 20% of all shares going to retail allocation. That’s saying something.
An IPO that brings the still shell-shocked and the still skeptical out of the woodwork, the burned investors who still cast a wary eye toward Wall Street, the disillusioned among the 99%-ers, the Tea Partiers and everyone in between … well, that deserves a closer look.
As with other delicate topics, we’ll try to take a Switzerland approach and not take sides. Instead, we’ll discuss pros and cons, and whichever sides speaks to you, then perhaps some information here will help you make a sound decision.
By way of disclosure, we’re steering clear of FB, at least for the time being but most likely for quite a while. There’s too much emotion at this point. And if our experience has taught us anything, it’s that staying dispassionate is one of the few weapons you have to protect your money as a retail investor.
Be mindful of the large gulf between the value of FB to users and the value of FB to investors. Once emotion exits the equation, FB will be graded similarly as other stocks, and you will be able to know if it presents value to you as an investor.
That said, and with only a handful of trading days under its belt (alas, not much in way of technicals to analyze yet), here are several issues to digest if you are considering FB.