I Don’t Get the Hype About The Facebook IPO

by Evan

A few friends have asked me what I thought about The Facebook IPO and I don’t really get the excitement.  First thing first, it has been way too long since I talked about things I don’t get!  Some past examples include “I don’t Get why People Say they Don’t Want to be Wealthy“; “I don’t get the Early Retirement Movement“; “I don’t get Investment Services“; “I don’t understand the SWR discussion” there are a lot more if you check out my random or rant categories.  I digress, there is such hype around this IPO and I just don’t get it.

I, like every other American, have and use facebook, but I, like every other American, use google and I don’t own that stock either. I, like every other American, use Microsoft products, but again, I don’t own that stock currently.  Just because something is used doesn’t mean it is priced correctly as a Stock.

What I do see is a company that is being valued at 75 to 100 times its earnings which my gut screams is lunacy in toady’s market. Yes, it does have a moat with a 900 million member head start on any competitor and yes facebook has a passionate CEO but the valuation seems a little crazy to me right now.

I could see maybe a purchase on opening day in the hopes that the market goes crazy, and then selling shortly thereafter or even purchasing one of a few companies that guy in way before the IPO.  MoneyWatch provides 6 publicly traded companies that own Facebook shares prior to the IPO maybe purchase those companies in the short term?

Although as of this morning LNKD in is selling at a crazy 600+ P/E so maybe I am the crazy one. LOL.  Since I am going to go with me being the crazy one don’t listen to anything I say on here as investment advice.

Do you have plans to buy shares when they go public?

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24 comments

Shawanda May 11, 2012 - 9:52 am

I have no plans of buying Facebook shares. Currently, I don’t own individual stocks. I’m afraid I won’t know when to sell. For me, buying individual stocks feels a bit like gambling. If I’ve got money to gamble, I’d rather lose it in Vegas. I know very little about individual companies and I’m not going to bother learning anything about them, their industry, etc. I’d rather spend my time researching ways to make my own business better.

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Evan May 21, 2012 - 3:17 pm

So are all your investments in index funds and mutual funds?

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Money Beagle May 11, 2012 - 9:27 am

I hear you. My gut tells me that the massive growth that would drive massive opportunity on this stock has already taken place. This is great for those who already have ‘shares’ and will be cleaning up, but I don’t see new investors making out nearly as well.

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Evan May 21, 2012 - 2:43 pm

Only time will tell if we are right! One day into trading and it is down but this is a 10 or 20 year discussion

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JT May 11, 2012 - 11:48 am

Hmm, I keep hearing about the Facebook IPO hype on TV and in the financial press, but never “in real life.” Only one friend I know has said anything about it, and he was just bamboozled with the $100 billion valuation more than anything.

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Evan May 21, 2012 - 3:18 pm

Eh that’s because you are in college and there are MUCH better things to talk about like women and booze. I am envious, buddy!

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Squeezer May 11, 2012 - 12:36 pm

I do not understand all of the hype either. Maybe its because I cannot get in on the IPO because I don’t have millions of dollars to invest.

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Evan June 6, 2012 - 8:22 pm

Squeezer you could have gotten in on the open market when it started trading

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Lance May 11, 2012 - 1:26 pm

Hype is hype and the media is prodding people along. An easy answer for me is no I won’t be buying their stock directly because I don’t buy individual stocks.

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Evan June 6, 2012 - 8:23 pm

are you all etfs and mutual funds?

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Spokane Al May 12, 2012 - 1:15 am

As a person who invests predominately in index funds, I suspect I will soon own a small portion of Facebook whenever it goes public.

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Evan June 6, 2012 - 9:03 pm

Well you now have some shares!

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Paul N May 12, 2012 - 7:38 pm

I suspect this stock will have a chart very much like GM has had since it it’s new IPO. All hype then a slow frustrating decline. I won’t buy it either.

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Evan June 6, 2012 - 9:05 pm

We are only a few weeks deep but your theory seems to be right thus far. I think eventually it will stabilize and then shoot up if they come up with something new or KILL an earnings seasons

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TM May 13, 2012 - 12:14 am

The media has hyped this stock up way too much for their to be a whole lot of value there. We are not even completely sure what the overall monetization model is going to look like at the end of the day, how do we possibly go about evaluating cash flow and growth potential?

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Evan June 6, 2012 - 9:08 pm

Well it is all out there now…but cash flow seems hard to extrapolate considering how unique the business is

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Oren May 13, 2012 - 9:13 am

I hear your points and I am not going to be buying the stock because technology stocks change so rapidly that I can’t keep track of them to make sure there isn’t “the next big thing” already out there. That being said, your numbers are right, but their earnings trajectory has been so great that P/E ratio will come done soon with the great earnings, unless the price goes up which it probably will.

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Evan June 6, 2012 - 9:45 pm

The earnings have to increase 50 fold to even get to a high P/E level nevertheless astronomical. But only time will tell…although I hear you about the problem of knowing whether the next thing is already out there!

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Jenna May 14, 2012 - 4:50 pm

I think it would be fun to own part of something that you already spend so much time engaging with already. That being said, I’m not sure I would invest in it right away.

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Evan June 6, 2012 - 9:46 pm

I think it would be cool to decorate an office in framed shares one day…but that doesn’t mean I would invest in every company that is on my wall

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gekko May 15, 2012 - 6:30 am

It’s gonna be a crazy friday. If I had 100,000 to play with ( and never care if i lose them) I would definitely buy some FB shares.

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Evan June 6, 2012 - 9:46 pm

Luckily you didn’t at the time…although you can pick some up a lot cheaper now

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Vincent Turner May 30, 2012 - 12:22 pm

I have, unfortunately, a little 20/20 hindsight in my comment here but I think the attitude of the CEO is very much long term. I think the quote went get money to build the company, not build a company to make money.

Not sure if the P/E reflects that accurately but I have no doubts that facebook is going to end up dominating the media landscape, which is the proxy for mainstream consumption. That may destroy value in traditional media markets but that will be gradual.

There is a ridiculous number of avenues available to fb to monetise and with a $16bn ‘warchest’ (i hate that term) and already profitable they have a lot of time & bandwidth to work that out. Added they have some of the brightest minds in the media landscape.

Can’t wait to see how this unfolds, happy to say I picked fb to overrun myspace 2 years before it happened 🙂

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Evan June 6, 2012 - 9:47 pm

Imagine all those people who chose the wrong horse (NewsCorp I think).

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