Facebook (Nasdaq: FB) finally made its debut among much fanfare and frenzy Friday.
But the Facebook stock price failed to soar as high as the hype. While not exactly a dud, the intro was definitely subdued.
Shares opened around 11:30 a.m. in New York at $42.05, up about 11% from Facebook's IPO price. Momentum quickly ebbed, and shares dropped as low at the $38 IPO price in the first half hour of trading.
By 3 p.m. shares were hovering just above $38. But with an hour of trading still to go, investors shouldn't get complacent.
"The day isn't over," cautioned Money Morning Chief Investment Strategist Keith Fitz-Gerald. But regarding Facebook's debut, "initial trading has not been impressive."
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The social media giant priced at $38 a share, the company announced after market close yesterday (Thursday).
That makes Facebook the largest tech IPO in history, valued at $16 billion.
It's the third largest U.S. IPO ever, behind first place Visa at $19.7 billion and then General Motors, which raised $18.1 billion.
While the stock has created unrivaled investor frenzy, there is a wide range of predictions for how Facebook will do in its first trading day - and who the real winners will be.
"The ones who make out on IPOs are the early investors, venture capitalists, founders, and underwriters," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "The public almost always goes along for the ride...whether or not they get taken for a ride remains to be seen." The Facebook stock price will be determined when it starts trading today at 11 a.m.
Where the cutoff is for considering the IPO a success varies - with many thinking anything below 50% would be a disappointment.
"I think anything over 50 percent will be considered a successful offering - anything under that would be underwhelming, Jim Krapfel, an analyst at Morningstar, told Reuters. "A lot of retail investors are not concerned about valuation. That's what is going to drive the first day pop."
Sorry, NYSE: Facebook (NASDAQ: FB) Will Trade on Nasdaq
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Say hello to NASDAQ: FB.
Facebook had no comment as to why it chose Nasdaq. The news was reported in The New York Times citing a source speaking on anonymity.
Facebook plans to raise up to $5 billion in its initial public offering (IPO), which it filed for Feb. 1. It's expected to start trading in May.
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Buy, Sell or Hold: When to Buy Shares of Facebook
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Facebook Inc. (NYSE: FB) is the most awaited initial public offering (IPO) since Google Inc. (Nasdaq: GOOG).
The recent registration of the company's IPO documents means it won't be long until Facebook shares begin trading freely.
But will Facebook shares make you rich beyond your wildest dreams like mural painter David Choe?
Or would you be better off watching from the sidelines before you buy shares of the social media giant?
The Details behind the Facebook IPO
Here's what I've learned from Facebook's S-1.Some of the data points buried in the IPO document are eye-opening, to say the least.
Chief among those are Facebook's assertion that 6% to 7% of the entire world population logs in every day. More importantly, they stay logged in for a significant amount of time.
However, what will happen in the future to drive the stock's share price after it's brought to market is buried deeper in the details.
It's these details that make Facebook's IPO a hold if you already own shares, but also a "wait to buy" if you are like most people and want to own them.
In a nutshell, what I've learned is the banks are bringing Facebook to market fully priced.
My opinion is the bankers have gotten greedy and decided to push the valuation numbers above the levels that I believe are sustainable.
The company is being valued at $75 billion - $100 billion dollars at launch. This would make it one of the most valuable companies in the world, yet its actual revenue, let alone profitability, is at a more mundane level.
Currently, Facebook is reporting about $4 billion in revenue and profits of $1 billion.
That means if Facebook prices in at the top of its estimated range ($100 billion), based on current disclosures it would have a 100-to-1 price to earnings (P/E) ratio.
In other words, it's only going to take about 100 years for Facebook to eventually earn what it may price at. Compared to other blockbuster stocks, that's quite rich.
By comparison, Apple Inc. (Nasdaq: AAPL) has $100 billion in cash and a P/E ratio of 11 while Google's P/E is 20.
That's why it's time to "Hold" Facebook (**) or wait to buy it until insiders get a chance to sell their shares and bring the price down to levels common people can realistically afford to purchase.
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