All the noise generated by the news of Facebook's filing to go public reached near-deafening levels last week, with essentially every media outlet (this one included) covering the story. And while the story certainly matters on a number of levels, what's the individual investor to make of the social-networking giant's impending debut? In an attempt to gain some much-needed perspective, we at the Fool recently surveyed four of our main technology and media contributors to get their individual views on how investors should approach this big-time IPO.
Tim Beyers (TMFMileHigh): Is Facebook worth $75 to $100 billion? That's the only question that matters in evaluating what the social network says in its prospectus, which was filed last week with the Securities and Exchange Commission. My answer is "probably."
The math has something to do with it. Facebook produced roughly $600 million in 2010 profit as top-line growth was doubling. The social network closed last year with $1 billion in earnings, valuing the stock at roughly 100 times earnings at the IPO. Before you argue that's too rich a valuation, remember that game-changing stocks typically trade for a lofty premium at the beginning. In this case, Facebook is doing for social advertising what Google (NAS: GOOG) did for search advertising, but tens and perhaps hundreds of billions are still up for grabs.
Rick Munarriz (TMFBreakerRick): It's trendy to bash Facebook's upcoming IPO as an overpriced bubble, but I've learned to respect the social-networking giant's momentum.
Anders Bylund, Tim Beyers, and I tried to peg a value on Facebook four years ago. I was the reasonable one at $3 billion. Beyers was the crazy one at $15 billion back then. But looking at the numbers currently expected, I guess he wasn't so loco after all! Underestimate Facebook at your own risk.
I've heard worrywarts warn of "Facebook fatigue" for years, and what has happened? Facebook's user base has doubled over the past two years to 845 million. Traffic tracker comScore shows that Facebook's share of the display-advertising market went from 21% to nearly 28% over the past year. The nearest competitor -- Yahoo! (NAS: YHOO) -- is clutching for life to its 11% slice of the pie.
If you think Facebook is rolling in potential now, just wait until it turns on the fire hose. Just wait until it does more than just serve up cheap ads on user pages or collect royalties from app developers. Facebook may not stay on top forever, but it's showing no signs of peaking.
Anders Bylund (TMFZahrim): If there's one thing the Internet IPOs of 2011 taught us, it is to stay far away from the actual launch.
Take Pandora Media (NYS: P) and Groupon (NAS: GRPN) as two shining examples of what not to buy right away. Both stocks launched to wild acclaim, crushed launch prices on the first day ... and then fell head-over-heels over the next few months. Pandora recovered, only to fall again; Groupon is still nursing those initial wounds. Both stocks trade well below their first-day closing prices today.
If you want to own Facebook, I'd suggest allowing the stock to cool down before touching it. Chances are that the hype pattern will repeat again, only magnified by Big F's much larger valuation target.
Doing so also gives you a chance to digest what makes the company tick. We all know Facebook the service, but Facebook the business' particulars are just getting digested. The S-1 statement helped some, but it's better to wait for the first quarterly earnings release.
Blind investing is like friending total strangers. Don't buy what you don't know, Fool.
Evan Niu (TMFNewCow): With Facebook being the most anticipated IPO in this Fool's recent memory, I'm with Anders on this one. Overhyped IPOs are just plain dangerous. It's one thing to get in on at the offer price -- and remember that the actual offering is probably still several months away -- but it's entirely different to hop on the hype and buy shares just to post a status update along the lines of "All your Facebook are belong to ME!"
While the initial expectations peg the overall valuation shy of $100 billion, the offering is supposed to be raising less than $5 billion in new capital, of course meaning the float could be in the ballpark of 5% of shares. We saw a similar story play out with Groupon, which floated just 5% of shares. After the offer priced at $20 and the starting pistol popped, it raced up to $31.14, a 56% premium over the offer price, and settled down to close at $26.11, a 31% gain. A nice score except for the buyer at $31.14 who saw 16% of blood on the day and is still hoping to break even.
I expect the same with Facebook, which is effectively guaranteed to be oversubscribed. If you're lucky enough to get in on the actual offer, go for it. If not, I'd wait and see.
Foolish bottom line
The Facebook storyline is sure to garner plenty of attention in the year to come. However, it isn't nearly the best opportunity facing tech investors at the moment, not by a long shot. One market especially comes to mind -- the smartphone market. And while most investors already know about the big names in the space like Apple and Google, some other low-profile companies also appear poised to benefit big-time from this growth story. That's why the Fool recently compiled a new research report detailing "3 Hidden Winners of the iPhone, iPad, and Android Revolution." We made this report free to our readers, so access your copy while you still can.
At the time thisarticle was published Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. Tim and Anders owned shares of Google at the time of publication. Fool contributors Rick Munarriz, Evan Niu, and Andrew Tonner hold no financial position in any of the companies mentioned in this article at the time of publication. The Motley Fool owns shares of Yahoo! and Google.Motley Fool newsletter serviceshave recommended buying shares of Google and Yahoo! Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy..
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.