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After the IPO: A Strategy for Trading Facebook

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As an investor, I have to make tough decisions: What am I willing to pay and how soon?

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Sean Udall is the author of the TechStrat Report, a tech focused newsletter. The following is a free sample. Take a free trial!

MINYANVILLE ORIGINAL Frankly, I'm hoping that there is enough doubt to make Facebook (FB) 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 initial public offering (IPO) shares, but again 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. It's easier to talk about Facebook's market valuation versus specific share price. There is no exact science and we won't know until we have firm pricing and a firm number of shares. They just raised the share count by 25% and it's not clear if they raised the value by that amount or just increased the percentage of the total company being offered.

At $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 (GOOG), 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.

Google is still growing between 25-30% and has a price-per-sales ratio of just 5x, and that is with more than 20% of the total market capitalization of the stock in net cash. Moreover, a Facebook at $200 billion valuation is no longer at 25x sales, it would come in at 50x sales. Compared to Google, it would be growing at twice the rate, but at 10x the sales multiple. So either Google is massively undervalued (something I believe), or Facebook is radically overvalued.

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.

See also:

Why Facebook May Still Grow Its Valuation, Or Justify It

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


New! The TechStrat Report by Sean Udall. Sean provides in-depth analysis, strategies and trades across the technology sector. Take a FREE 14 day trial.
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Author holds positions in GOOG, AAPL, FIO, EA, EMC

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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