The Facebook IPO: To Buy or Not To Buy
Just the Facts
The Federal Trade Commission (FTC) has reportedly been investigating Facebook’s recent purchase of Instagram. This process could last for up to a year, an interesting development considering that the Facebook IPO is currently set for May 18.
In similar instances, the FTC would only delay an IPO if any information concerning the acquisition were to affect stock prices. The investigation itself is routine. The FTC often requires extremely detailed filings for any acquisition over $68.2 million. For now, the IPO should remain on schedule.
In order to stay on schedule, Mark Zuckerberg has been hard at work, speaking with select investors in an attempt to convince them of the stock’s value. Currently, 901 million users spend a combined 8.5 billion minutes browsing Facebook every day. It doesn’t take an economist to realize the value of such a widely used platform.
Earlier this week, CNBC reported a planned increase in Facebook’s IPO size by a reported 85 million shares. Such an increase could value the IPO at as much as $18.5 billion. Facebook’s available shares would jump from 340 million to around 420 million if the 25 percent increase is successfully carried through. All things considered, this could set the total value of the IPO at nearly $20 billion. The final decision on share price, which should fall somewhere between $34 and $38 per share, will be set on the eve of the IPO.
To Buy or Not to Buy
I’m tempted to invest in Facebook stock, especially because I make a living working in the social media industry. However, I’ve never purchased stock in anything, especially anything as high level as the Facebook IPO.
However, I am very good at research. Apparently, getting IPO pricing on a stock like Facebook is very difficult (unless you manage a large amount of capital). The Securities and Exchange Commission (SEC) explains “the underwriters and the company that issues the shares control the IPO process.”
Facebook will likely target big-time investors, not different from the investors visited by Zuckerberg himself earlier this week.
Basically, Facebook’s IPO will initially be invite-only.
The Average Investor
Individual investors have a few options if interested in purchasing Facebook stock at it’s initial offering. Buying into a mutual fund that invests in IPOs is a good place to start. There are few of these funds in the market, and the returns on these funds tends to be baseline.
You could also buy on the aftermarket. From what I understand, this seems a little tricky. So tricky, in fact, that I’m not even sure how it works. This type of move is best done through a broker, and even then, it can be risky.
Lastly, investors always have the option to watch from the sidelines. Eventually, Facebook stock will be available to the average buyer. Sure, you may end up buying at a higher rate, but at least the rate will have evened out.
Facebook is set to begin trading tomorrow on the Nasdaq under the ticker “FB”.