Facebook: Will its IPO be a success at the Street? – Part 1

Facebook is planning to initiate the filing for their firs Initial Public Offering this year. The Securities and Exchange Commission will be taking the social network’s financial statements under consideration. So far the vitals of getting into the stock market are strong for Facebook. The reputation is good although Mark Zuckerberg and company has been hit by the Federal Trade Commission last year for the loopholes in the privacy and security.

The social network is getting its IPO out the door this year and it probably will fall somewhere in the summers. Everyone seems to be bullish. The IPO price is estimated to give the company a valuation of $100 billion. We are hearing advice in the media such as “back up the truck and buy,” “let’s get the party started,” etc.

In such an environment, it’s not popular to express the opposite view. It usually generates hate e-mails, with all the profanity those with limited vocabularies can spit out. I have always wondered why those who disagree don’t have a better command of the English language.

Knowing this, let me share my contrarian view of the situation. I remember January 2000. It was the exact top of the Internet and technology bubble. Internet stocks were selling at P/E ratios of 400, or infinity if they didn’t have any earnings. That’s when AOL bought the biggest media company in the world, Time Warner.

To me, that was the ultimate signal of an important bull market top. I wrote that a Web site was buying a huge, valuable company with nothing but paper. I called it the greatest master sales job in history. Congratulations to Steve Case.

Now we have another Web site “distributing” stock to the public. It’s a Web site. The profits are not significant given the valuation. Nor apparently is there a plan to monetize its 800 million “members.” These members pay nothing to join, and pay nothing to belong.

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Posted by Usman Khalid on Jan 31 2012. Filed under Business. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.