You might find yourself eyeing the 2012 IPO calendar with a bit more scrutiny after the Facebook (Nasdaq: FB) fiasco.
Although Facebook has been nabbing the most attention for disappointing its investors, it's hardly the first IPO to do so. It's all part of the fickle IPO process.
In fact, about 40% of the IPOs to hit the market over the past 12 months have seen their share prices fall below their IPO prices.
Facebook isn't the only factor to blame -- U.S. unemployment is up, the Eurozone debt crisis is sapping bullish spirit, and the upcoming U.S. presidential elections in November are adding to market uncertainty.
But avoiding IPOs altogether could also be a huge mistake.
Just ask those who bought the Google (Nasdsaq: GOOG) initial public offering. The Google IPO priced at $85, started trading at $100, and now trades around $560.
So how can you put yourself in the 60% group and earn a profit in the process?
With the right research and guidance, you can spot winners just like Google.
Do Your IPO ResearchInvesting in IPOs is like buying and selling any asset: due diligence is required.
An IPO, like a credit-default swap or subprime mortgage, is the ideal financial instrument for a limited set of circumstances. It is up to the individual or the institution to determine if the IPO they are considering is suitable for a long-term investment or a short-term flip.
If it qualifies as just a short-term flips, that is enough to tell you not to buy.
Whatever the investment objective, however, information is readily available for the necessary and needed due diligence.
For example, on March 17, 2011 Michael J. De La Merced wrote an article in The New York Times about the IPO of FriendFinder Networks (NYSE: FFN).
In his Timespiece,"FriendFinder Braves Choppy Market with IPO, Again," De La Merced did an excellent job of detailing his concerns with the stock, ranging from the disposition of the proceeds of the IPO to the accounting at the company to the number of times it had attempted to go public before and had to withdraw the offering.
FriendFinder Network IPO priced at $10 a share last year; it's now selling for around $1.15.
Other times an IPO can be hurt by factors having nothing to do with the financials of the company or the overall economic situation.
Take the Carlyle Group (Nasdaq: CG), a Washington, DC-based private equity group, which went public in May. Until Election Day in November, private equity groups will be vilified by the Obama Administration, unions and others due to Republican presidential candidate Mitt Romney's work with Bain Capital.
There is no way that can aid the share price of Carlyle Group. Now trading around $21 a share, Carlye Group has slipped from its IPO high of $22.45.
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Facebook Stock Price Hits Low – Can this New Strategy Help?
After hitting a new low of $25.75 on Tuesday, Facebook (Nasdaq: FB) stock slid further Wednesday morning despite a nice rally for U.S. equities.
With the Dow up nearly 90 points right after the opening bell, Facebook shares edged down to $25.68 in early morning trading, reaching another new low. Shares now sit more than 30% below the IPO price of $38.
Weighing on Facebook Wednesday was news that the Nasdaq Omx Group (NDAQ) will tell brokers exactly how it will recompense investors for the myriad trading problems during the Facebook IPO frenzy. Problems at Nasdaq contributed to order issues that prompted several class action law suits.
But what drew more attention from investors was a comment by Ironfire Capital founder Eric Jackson. The analyst appeared on CNBC's "Squawk on the Street" program Monday and said that Facebook will lose its dominance as a social network in less than 10 years.
Jackson highlighted Facebook's inability to make leeway in the thriving and prominent mobile arena, as well as the stock's steady tumble since the company's epic IPO.
The comments have triggered suspicions that Facebook will suffer the same fate as MySpace, once the dominant force in the social networking circle, and Yahoo (Nasdaq: YHOO), once a leader in Internet search.
"In five to eight years they are going to disappear in the way that Yahoo has disappeared," Jackson said. "Yahoo is still making money, it's still profitable, still has 13,000 employees working for it, but it's 10% of the value that it was at the height of 2000. For all intents and purposes, it's disappeared."
Now Facebook has a new strategy to increase its reach - and its profits - but it's one that will likely raise some eyebrows.
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Facebook Stock Price: Is Mark Zuckerberg Losing Sleep Over This?
Everyone's eyes are on the falling Facebook stock price, but CEO and founder Mark Zuckerberg remains silent on the issue.
Facebook (Nasdaq: FB) stock is down about 17% from its $38 IPO price. But Zuckerberg has not commented publicly or issued a company statement, according to The Wall Street Journal.
Silicon Valley rumors tell us that Facebook employees have been told to concentrate on work and not comment on the IPO fiasco.
Meanwhile, Nasdaq criticism continues and lawsuits pile up as investors who are left with more FB shares than they wanted - worth less than they bargained - feel cheated.
And Wall Street is left to bet on when or if FB stock will rebound.
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Five Ways to Avoid the Next Facebook IPO Fiasco
On the heels of the Facebook IPO fiasco, many investors are wondering how they can find the next best thing and avoid getting "facebooked" in the process.
Tall order? Not really.
First, look for companies with ideas that can be applied across a wide variety of industries.If I had said this five years ago, you'd be looking for Internet- related startups or companies that can do "it" better, faster or cheaper.
Going forward however, I think the true innovation will be exponential progress that's made linking living systems with their digital counterparts. Everything from synthetic biology to computational bioinformatics will grow a lot more rapidly than the broader markets.
So will key markets related to healing human illness, solving hunger and figuring out how to deliver potable water to broad swathes of the planet.
No doubt there will be tremendous ethical challenges along the way, but I believe we will see the line blur between what's needed to live and how we actually live our lives.
Though it's hard to imagine given the state of the world at the moment, I believe a fair number of the best up- and- coming investments will be outside the traditional first- tier markets of the United States, Europe and Japan.
In fact, I'd bet on it.
Second, don't confuse the ability to organize or share information with the ability to generate revenueOne might lead to the other but they are not the same thing.
The way I see it, Facebook is a classic example of everything you don't want in a business. It is 900 million users who spend an average of $1.32 a year. Compare that to Amazon.com, which clocks in at a much more valuable and consistent $36.52 per person.
Call me crazy, but I don't think Facebook stock will see the bottom for a while. As I wrote last Friday, at best Facebook is worth $7.50 a share.
Revenue is slowing. Facebook doesn't dominate the mobile markets that are becoming the preferred consumer channel for tens of millions of people. And, in what is perhaps the death knell, startups are already cannibalizing Facebook's user base.
The ability to "like" somebody is really no different than signing their yearbook in high school --only you're using a computer and the Internet to do it.
Third, hunt for fringe thinkers working in their garages.It's not enough to think differently. The next big things will come from those thinkers operating on the fringes of what the rest of us consider normal.
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Facebook Stock is Worth $7.50 a Share at Best
Duh on you if you bought the Facebook IPO.
Double duh if you're thinking of buying Facebook stock now that it's fallen to $32 a share and lost $17.16 billion off its initial $104 billion valuation.
The company is only worth about $7.50 a share. And, no. That's not a typo. There is no missing zero or a placeholder.
That's reality. What is ludicrous is that Morgan Stanley and Facebook executives thought the company merited a $104 billion valuation at 100 times earnings.
As my good friend Barry Ritholtz pointed out recently, both Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG) debuted at about 15 times earnings. Today they trade at 13.6 and 18.2 times earnings and 3.75 and 4.9 times sales respectively.
As I type, Facebook's market cap is $86.84 billion and its price to sales is ridiculously high at 21.01. I think that's way out of line.
So what should the numbers be?
Try this on for size. If we use Google's price to sales ratio of 4.9 (and I am being generous here for discussion purposes), that equals a total market cap of $20.24 billion or 76.68% lower than where it's trading today.
With 2.74 billion shares outstanding, that's equal to only $7.39-$7.50 per share.
No doubt I'll get the evil eye from the Facebook faithful and Morgan Stanley for saying this, but think about it.
Revenue is already slowing and the company does not and cannot possibly dominate the mobile markets that are becoming the preferred channel for millions of people.
Worse, startups are already cannibalizing Facebook's user base as concerns over privacy and who likes who mount.
Companies like General Motors (NYSE: GM) are deciding not to renew their advertising. This is going to hit Facebook to the tune of $10 million a year for the loss of GM alone.
More will undoubtedly head out the door for the same reason, since Facebook friends don't necessarily translate into revenue.
Corporate buyers are beginning to figure out that advertising on Facebook is simply not cost effective versus other media alternatives - gasp - including good old fashioned television and radio advertising, billboards and tradeshows.
Facebook Stock: At the Mercy of the Merely CuriousMany people think this isn't a big deal. They couldn't be more wrong.
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Is Facebook (Nasdaq: FB) a Replay of the AOL/Time Warner Deal?
I hope you didn't buy shares of Facebook (Nasdaq: FB). The valuation was always too aggressive.
And increasing both the price and amount of Facebook stock at the last moment ensured that both underwriters and retail investors ended up with far more shares than they bargained for.
In fact, the Facebook fiasco reminds me of another deal that marked the peak of the dot-com boom.
No, not the ineffable and rather sweet Pets.com- their IPO was far too small a deal to have genuine market significance.
Instead I'm talking about the AOL and Time Warner merger announced on January 10, 2000.
Like Facebook, the deal was sold as a big success. It was only later that it quickly became clear that AOL had sold itself at the absolute peak of the market.
From there on out it was all downhill as the storied merger practically top-ticked the market.
Before Facebook There Was AOLAOL had built up a nice business from "dial-up" Internet access, but it was already obvious by January 2000 that the arrival of broadband Internet would make for a difficult transition.
As such, AOL's market capitalization of around $200 billion was purely the result of the frothy market of 1999.
Nevertheless, that rich valuation enabled AOL to become the senior partner in an acquisition of the Time Warner media conglomerate, getting 55% of the merged company in a deal valued at $350 billion. It was the largest merger in U.S. history.
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Facebook Stock Price Drama Heats up with Lawsuit (Nasdaq: FB)
Investors are not taking lightly the lackluster performance of the Facebook stock price (Nasdaq: FB).
On Tuesday the finger pointing blame game began, followed today (Wednesday) by lawsuits.
Investors who claim they were misled in the purchase of the social network firm's stock filed a lawsuit against underwriters Morgan Stanley (NYSE: MS), Goldman Sachs (NYSE:GS), JPMorgan (NYSE: JPM) and the other underwriters, some 33 in total.
According to a complaint filed Wednesday in Manhattan federal court, the investors, who are members of a proposed class action lawsuit, claim they have lost more than $2.5 billion since Facebook's debut last week.
Morgan Stanley has been accused of mismanaging the offering by either signing off on a price that was too high, or agreeing to sell too many shares.
Facebook went public May 18 amid much hype and fanfare at $38 a share, the high end of the increased price range.
Several investors are frustrated that they got more shares than they were expecting in the IPO. They in turn dumped those shares when Facebook began trading Friday, pressuring the stock's price down and taxing the Nasdaq's overburdened platform. This resulted in a myriad of problems including late execution reports, communication problems, and delayed quotes.
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- Facebook Stock Price: Time to Play the Blame Game
- The Time to Buy Facebook Stock