Monday, June 20, 2011

Investors "Like" Potential Facebook IPO

If potential investors could "Like" the prospect of a highly-anticipated and nearly inevitable announcement of an initial public offering for Facebook, it's a good bet that almost all of them would--and not with a nonchalant click of a mouse, but rather with a very large stack of cash.

Knowing that, the next step is determining if this love affair with a non-existent Facebook stock is justifiable, and why.

Recently, Groupon announced its intention to deliver an IPO, much to the pleasure of countless investors looking to get in on what some feel is the makings of another tech bubble. After the success of LinkedIn's (LNKD) offering, people can't wait to get in on the ground floor of the bigger online companies, a la Facebook.

Even foreign stocks such as RENN, the quote-unquote "Chinese Facebook," have drawn great attention at their outset. While online companies continue to be all the rage, the difference between the tech bubble of the early 2000's and this sort of new tech bubble is that the companies in the present actually have means of financial backing (though sometimes, not as much as you'd like to see in a stock going for a stock topping $100 per share initially... we're looking at you LNKD, now closer to $60 a pop).

We don't see a bubble bursting in this regard, and in fact see many online and computer companies, such as MSFT (Microsoft)--which we highlighted earlier--and YHOO (Yahoo), as undervalued. What we do see is a good opportunity to short some of these stocks following their IPOs, including Facebook's eventual offering.

While enticing to "get in on the ground floor," it's important to remember that regular Joe investors aren't the typing boosting these IPOs to double their asking price on the first day. It's major firms and big time investors that drive these prices, while the average investor gets in only after the price has ballooned. Nevermind that the Facebook IPO will be well over $100 a share, something an at-home investor type can only realistically purchase a handful of. A better bet is to short these tech stocks after they inflate.

Don't get us wrong, we like the long term prospects of a potential Facebook stock, but the IPO will rise to epic proportions before falling back to earth. Only then will it begin a steady climb--optimistically the likes of which only Google has seen--but initially, shorting the stock (when it finally arrives) is the option we "like" the most.


Post a Comment