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10 Takes on the $38 Facebook IPO

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Minyanville's top contributors discuss the metrics, technicals, and other factors they considered when sizing up today's IPO. Who would buy, who wouldn't...and why?

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Smart Money Will Let the Dust
Settle
by Michael Sedacca

Facebook's model of advertising and revenue growth has been under intense scrutiny, but despite the lackluster growth (it fell 39% year-on-year), it is being priced at the highest P/E in history. I think that investors are betting that Mark Zuckerberg can pull a rabbit out of his hat and keep the company growing in new and different ways.
I think the smart money here is to not buy into the IPO and let the dust settle from all of the hype. It can't be good if one of your biggest advertisers, GM (GM), just cancelled their advertising after spending $10 million and receiving nothing in return. This will be a big downfall for Facebook, as advertisers begin pulling advertising money due to the low return or lack of return.

Michael Sedacca edits Minyanville's Buzz & Banter. Read his recent stories, here.


Undecided and Sitting This One Out
by Michael Comeau
I'll admit I'm torn on Facebook.

One one hand, the company has clear issues. Since its user base is already so big -- literally one-seventh of the world's population -- it is running out of bodies to add. Additionally, as we've discussed in great detail, Facebook is having an awful lot of trouble improving its monetization of its huge user base.

On the other hand, everybody sees these fleas, and if they care, they're not showing it, as evidenced by Facebook's significant increase in the size of the IPO.

Additionally, I suspect that Facebook may whip out a serious mobile-advertising initiative after the IPO, which could help boost revenue at the expense of the mobile user experience, which stinks as it is.

Frankly, it's just too much to think about, so I'm happy to just grab my popcorn and sit on the sidelines.

Michael Comeau edits Minyanville's Buzz & Banter, and is also a regular columnist on Minyanville.com, focusing on technology and consumer stocks. Read his recent articles, here.

Under a $150 Billion Valuation, I'm In
By Sean Udall

The Facebook effect (the market euphorically embracing a new, possibly disruptive technology) has been around for some time. Without it, we would likely not have seen the early investment success of many other names -- think Yelp (YELP), Groupon (GRPN), Angie's List, and Zynga (ZNGA), just to name a few. In my view, the Facebook deal will have potentially long-running ramifications with respect to the technology investment landscape in general. Consider, for instance, valuation.
Many stocks are going to look a lot cheaper the minute Facebook starts trading. At the high end of the IPO price range, it's already sporting a $100 billion-plus valuation (actually close to $125 billion with increased allocation), a price-to-sales multiple exceeding 25x, and frankly I don't know if the price earnings ratio is meaningful, but it would be roughly 55 for the calendar year 2011. At least the ratio isn't negative and that's something.

According to the latest S-1 filed with the Securities Exchange Commission, Facebook's growth is in the 45% range. However, I think this might be a bit sandbagged and I expect to see Facebook's growth accelerate again. Even so, I think it's fair to say the days of 100% growth are gone. While I think Facebook is done growing by triple digits, I also think it may be able to grow at a fairly strong rate (say 30-50%) for an extended period of time. If I'm correct and Facebook grows strongly for an extended period of time, it will either grow into its valuation or at least justify it.

The question is: Can I catch Facebook anywhere close to 25x sales?

Frankly, I'm hoping that there is enough doubt to make Facebook trade within 10-20% of the initial IPO price for a few minutes. If it does, I'm a buyer. Will this happen? Highly doubtful. So I'm also trying to catch some IPO shares, but again, I'm not holding out a lot of hope. That means I now have a tough decision: What am I willing to pay, and how soon?

The stock is already trading at what amounts to a $120 billion-plus valuation (roughly $35-38/share) and I know I'm willing to pay up to $140 billion. At a $155-170 billion valuation, the decision starts getting a good bit tougher, but I'm probably willing to "try some" for a trade, as I would be playing for a move to the $200 billion range, and around here I would be a seller or certainly setting a trailing stop. Why? Because Google in my view, is a hugely superior asset with a heck of a lot less risk for its $200 billion valuation, roughly $625/share, than Facebook at that same mark.

(For more, see After the IPO: A Strategy for Trading Facebook.)

Bottom line, if I can't catch any Facebook under the $150 billion valuation level, I'll gladly walk and watch the stock. Also, I'll relish Facebook trading at that $150 billion value or higher as I believe it will benefit many of my holdings.

Positions in GOOG, AAPL, FIO, EA, EMC.

Sean Udall is an Investment Strategist, Portfolio Manager and Proprietary Trader with extensive experience across a wide variety of asset classes, including equities, fixed income, currencies and derivatives. He's a recognized trader, prolific writer and the founder of the TechStrat Report, a Technology Focused investment newsletter at Minyanville. Read more of Sean's commentary, here.


Social Mood Suggests Facebook Has Limited Upside
by Peter Atwater

As one who believes that weak social mood reflects "me, here, now" behaviors, let me offer that nothing says "me, here, now" like Facebook. Or is that now Twitter?!

Talk about, "It's all about me!"

My concern is that all of the other obvious "me, here, now" investing ideas that I see have either peaked already or are peaking -- gold (GLD), Apple, Netflix, Green Mountain Coffee Roasters (GMCR), Sturm Ruger (RGR) etc.

To me, that suggests limited upside to Facebook.

But I'd also offer that peaks in social mood/confidence reflect not just an attitude of certainty, but of self-assured certainty.

Maybe it is just old-fashioned of me, but a hoodie-sporting road show CEO sure signals self-assured certainty to me.

With the underwriters raising the price range yet again, I now think of Mr. Zuckerberg as Robin Hoodie; with this IPO, he is about to steal from the rich and give to the even richer.

Congratulations Mark, you've one upped Wall Street.

Position in SH and JPM.

Peter Atwater is the President and CEO of Financial Insyghts LLC. Through Financial Insyghts, Peter helps his clients better understand the issues affecting the financial services industry (particularly credit, regulation and accounting) and their impact on the economy. He is also a frequent contributor to Minyanville; read his recent articles, here.



Related stories:

A Rising Tide: 7 Stocks Poised to Benefit From the Facebook IPO

Four Reasons to Avoid Facebook Stock




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