Facebook made its trading debut in the US last week, causing a lot of investor frenzy.
This listing has been a long time coming and lots of people want to get in on it. The US Securities and Exchange Commission’s website almost crashed as it was overwhelmed by traffic.
There are lots of reasons why a Facebook IPO will succeed. Google and Apple have proved that “big flashy tech stocks” can deliver for investors.
Facebook is a big name, so it attracts a lot of interest. Even the fact that founder Mark Zuckerberg and his close allies will retain control of the company with almost 60% of shares isn’t necessarily a bad thing. This is what you get with visionary technology companies. Google has the same sort of structure and most people would rather buy stock in a company led by a highly committed, heavily invested founder who cares about his creation, than one that’s been hijacked by employees who only care about their next pay packet. But the reason for not buying in is because investing is not about taking monumental punts on companies which you only vaguely understand. . It’s about forming a clear understanding of the risks and rewards involved in buying a company, then deciding whether there is enough potential reward to make taking the risk worthwhile.
For me Facebook doesn’t fit those criteria and is already looking very expensive. Private stakes have already swapped hands among the Silicone Valley investment fraternity and that’s pushed up the price.
For Facebook to match Google’s post-IPO returns it would have to become the world’s first $700bn company.
If you buy Facebook for the long run, you’re betting on its ability to make an awful lot more money than it already does, in order to justify its valuation.
Given that there are a lot of well-established tech stocks that already make plenty of money, and carry a much lower valuation – such as Microsoft or even Apple, it is hard to see that the risk / reward balance here is attractive.