Facebook IPO Roadshow Continues without Retail Investors

Facebook IPO Roadshow Continues without Retail Investors – and Zuckerberg

By Diane Alter, Contributing Writer, Money Morning • May 8, 2012 • Print |

Facebook Inc. (Nasdaq: FB) launched its roadshow Monday in New York, with planned stops at several prominent U.S. cities before the trip ends.

Spotted sporting his trademark hoodie, 27-year-old CEO and founder Mark Zuckerberg was present at the heavily attended event in NYC.

But on Tuesday, as hundreds herded into Boston's Four Seasons hotel, Zuckerberg was nowhere to be seen.

"It's too bad Zuckerberg wasn't there. It was kind of disappointing," H. Scott Smith, senior equity analyst at Game Greek Capital, told the Boston Herald.

With its roaring cult-like following, a flurry of investors will be following the Facebook bus en route– Zuckerberg or no Zuckerberg.

Most of the roadshow audience, however, will be a selective and hand-picked bunch.

Only institutions with deep pockets and close connections to Facebook's IPO underwriters will have the opportunity to attend the roadshow and buy Facebook at the offering price.

What this means to ordinary investors is that they will most likely miss out on the expected immediate price pop when Facebook stock hits markets in the next week or two. That's where the majority of the gains are concentrated with an IPO.

"If you're somebody who's not wealthy and you really want to make a Facebook investment, there's an uphill battle. Retail investors are usually stuck buying in the aftermarket, and the juicy return is not so easily available," Gerard Hoberg, associate professor of finance at the University of Maryland, told Bloomberg News.

Shut out of the Facebook IPO

Investors shut out from "hot" IPOs, and who subsequently purchase shares after the original run-up, have historically had a difficult time not just beating the market, but breaking even.

As Bloomberg noted, of the 10 U.S. consumer Internet companies that went public in the past years, nine rose in their IPO debut. Yet, only three have remained higher than the first day's closing price. Losing more than half their value since their first trading day include daily coupon site Groupon Inc. (Nasdaq: GRPN) and the Internet radio site Pandora Media Inc. (NYSE: P).

These are nowhere near the extraordinary gains Google Inc. (Nasdaq: GOOG) gave savvy, or simply lucky, investors following its historic IPO.

The world's largest Internet search engine sold its shares in August 2004 at the steep price of $85 per share. Shares soared 18% to $100.34 in the first day of trading.

By the end of its debut year, shares of the Mountain View, CA-based company had nearly doubled from its IPO price. Google shares are currently up a staggering seven-fold since its unprecedented IPO.

At $35 a share, Facebook's foray into public trading makes a grand entrance with a $96 billion market value, far exceeding Google's $23 billion valuation when it began trading. That's despite the fact that Facebook earned about half as much annual revenue before its IPO than Google did.

And even the favored few who get in early won't get Facebook for cheap. Based on the high end of the anticipated valuation, investors are shelling out 99-times earnings, a loftier multiple than about 99% of companies in the S&P 500 Index.

But, buyers are giddy at the prospect of buying Facebook shares, despite the inflated valuation.

Michael Sha, CEO of SigFig, a San Francisco Internet-based company that assists investors with managing their portfolios, told Bloomberg: "A lot of time the retail investor isn't thinking about valuation. They often end up being the ones that buy high."

The hype is out there and the demand continues to bloom. According to ShareBuilder, on May 4, the day after Facebook's disclosure of its initial price range between $28 and $35 a share, inquiries about Facebook accounted for 11% of all calls and 23% of all e-mails from customers.

An initial spike in Facebook shares is almost certain when the company starts trading on or around May 18. Anxious investors can limit the upside they are willing to pay for shares of Facebook with a limit order, putting a ceiling on the highest price they will pay as opposed to a market order (which is a buy order at the best available price at the time the order is placed.)

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