Friday, news broke that Facebook was preparing to file papers for an IPO possibly as early as next Wednesday. While just about everyone is ON Facebook, many people probably haven’t considered all the reasons this will be a bad investment for retail investors trying to jump in after the open. Here are just a few concerns I have that are worth thinking about:
Why Now? Facebook is projecting a Billion Dollar profit in the coming year. Why do they need to raise equity through an IPO now? They don’t. Owners are selling out. Clearly, they should have gone public last year when all the other social networking and web companies were doing so at richer valuations. On that…
Valuation – Presently, they’re valuing the company at “$75-100Billion” for the IPO. Well, that’s a pretty wide range and pretty alarming when Facebook was fetching valuations of $100 Billion last year for private equity raises and on the secondary market. So, if they value the company at say, $85Billion next week, that’s saying the bubble is already deflating. You want to be and the losing side of that curve?
The Company You Keep -Speaking of all the peer companies that went public over the past year or two, how have they done post-IPO? Well, to name a few, Pandora (P) is down 20% from its IPO price, LinkedIn (LNKD) is down 19%, and Yandex (YNDX) is down a whopping 47%. Well, Facebook’s different, right? They’re all different companies. But they all have one thing in common – they are in the fast-growing, “hot and hip” segment which all went public to great fanfare, at a point when valuations were boosted by public sentiment, and then flopped. Meanwhile, the market at large has been hot lately, so this performance is even more alarming in that light.
Growth Rate – Facebook’s huge. So, where are they going to get all the growth they’re going to need to justify the valuation? Probably not through subscriber growth! It’s already a mature company and that curve is flattening out. So, will it be better monetization? Maybe, but if it impacts the user experience, that will be detrimental long-term.
Personally, I would have loved to have been able to invest on the secondary market years ago, wouldn’t we all?!!