“In the short run the market is a voting machine, and in the long run it is a weighing machine.”

-Benjamin Graham, regarded as the father of security analysis



With the FB IPO imminent, investor frenzy continues to grow. Given all of this interest, the stock may be a short term trading winner. Over the long haul, the IPO valuation does not leave a lot of room for investors.

That sentiment is reflected in the well known Graham quote — as far as emotional in the minute voting goes, the stock could see a hefty pop from the IPO price of $32. Consider this about the frenzy: Private investors who bought in during the last round paid 25% more than the IPO price.

That doesn’t mean this won’t bounce on the IPO. I cannot predict the madness of the multitudes, but a 30, 40, even 50% pop on the opening is not unthinkable.

There are a universe of fund managers I expect will have to own this. Despite the simple fact that at the IPO price of $32, FB stock will be 6 times as expensive as Google (GOOG), and 8 times what Apple (AAPL) shares cost.

Here’s Barron’s:

“Despite all the excitement, investors would do well to skip the deal. Facebook’s shares will be richly priced, both in absolute terms and relative to the stocks of established growth companies Google (GOOG) and Apple (AAPL), as Barron’s argued in February when Facebook filed for its IPO (“At Long Last Facebook,” Feb. 6).

If the deal is priced at $35, Facebook will be valued at around 70 times projected 2012 earnings of 50 cents a share and 18 times estimated revenue of $5 billion.

In contrast, Google, at $610, trades for less than 15 times 2012 profit estimates and under six times revenue. At $570, Apple shares have a 2012 P/E of just 12 and the company’s sales have been growing more rapidly than Facebook’s despite a revenue base that is 40 times larger. The effective P/Es on Google and Apple are even lower when factoring in their huge cash hoards. Facebook also will have plenty of cash—an estimated $9 billion—after its IPO.”

I wonder: Who is doing all the clamoring for this stock: Mon & Pop oon main street, or finance pros (term used loosely) who want a piece of FB?

We will find out soon enough . . .



Mad About Facebook!
Barron’s May 12, 2012

Category: IPOs, Valuation

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12 Responses to “Barron’s Goes Negative on Facebook”

  1. In Case You Needed Another Reminder That The “Level Playing Field” For All Investors Is Ridiculous…


    Addendum: Mark Cuban wrote the forwards for (Alex Berenson book) ‘The Number’ and nothing has changed

  2. BennyProfane says:

    “Mom & Pop on main street”? Really? Maybe 1% of the 5% who actually care about individual stocks. The rest are buying treasuries (of the small amount of Americans who are actually saving something), out of that sucker’s game. Like the Jamie Dimon debacle is going to convince them that the casino is a safe place for their money these days.

  3. Pantmaker says:

    Conflict of interest…ya think?

    Elizabeth Warren Calls for Dimon to Resign From New York Fed


  4. Tim says:

    Younger main street will buy into FARCEBOOK – and get squashed… Finance “pros” will buy and short sell, or whatever you call it CDS/CDO, etc :-)) Zuckie and the other kids will all retire to island and hilltop ocean mansions.

    BR, I haven’t been able to locate your Farcebook page, where is it?

  5. VennData says:

    My favorite accompanying me me is that Google made a mistake by by passing ibankers. They just say it was a mistake. No reason, maybe that “they would have gotten more.” Or some such nonsense.

  6. RC says:

    Is this IPO going to be the equivalent of the AOL-TimeWarner of the last cycle?

  7. Petey Wheatstraw says:


    Probably more like MicroStrategy.

  8. techy says:

    Taking the contrarion view: wasnt google priced like this back in 2004?

  9. techy says:

    Wanted to add that the irony is goog and FB will be fighting for the same adv dollars

  10. boveri says:

    If I were young and an investor in individual stocks (I’m neither), I think I would query every smart person I knew who was on Facebook and essentially ask if it is as PERFECT a vehicle as they could visualize for communicating, socializing and being part of the BIG mix of things.

    If the answer was absolutely positive I’d buy a small amount and forget it for a year or two. Why you say? — because a stock trader cannot psychologically afford to be left in the dust in case FB has a mortal lock.

  11. Margaret in San Jose says:

    So the IPO price is less than the private investors paid in the last round of funding.

    Are those private investors being diluted in this round?

  12. Mark Twain said that history does not repeat itself, but it sure does rhyme. FB will prove Twain right again.
    BTW I use FB regularly and noticed a 10x dropoff in “updates” ever since the company announced it was going public. It’s as if users became disgusted that they sold their data for $200 and got nothing in return, so they have either quit or have become less active.

    I also run ‘Financial markets’ fan page and can barely add fans. Most connections have no money. If they can’t even invest $1000-$10000 in stocks, then how can they have disposable funds for goods advertised on the site?