Facebook IPO triggers retail investor craze

Friday, 18 May 2012 00:00 -     - {{hitsCtrl.values.hits}}

Reuters: If ‘Facebook For Dummies’ helped you find friends and post pictures on the world’s No. 1 online social network, then consider ‘Facebook IPO Confidential,’ which purports to teach you ‘How To Get Rich With The IPO Of The Century’.

The e-book is one of about eight self-help manuals that appear to have sprung up overnight to try to capitalize on the frenzy surrounding Silicon Valley’s biggest initial public offering.

With other titles such as ‘The Facebook IPO Pitch: Are You In?’ and ‘How To Invest In Facebook,’ these books are far from bestsellers. But, along with countless online forums and news articles about the IPO, they underscore the desire of ordinary people – many of whom have never invested in stocks before – to get in on the $15.2 billion share sale.

“If you can’t invent Facebook, the next best bragging rights would be to say that you had invested in the social media phenomenon when it was a dorm room project. If not then, perhaps the IPO,” Nancy Miller wrote in a guide titled “The Facebook IPO Primer.”

Many wealth managers are advising their clients to avoid Facebook, pointing to a sky-high valuation of up to $ 104 billion set by the IPO, and potentially much higher once it starts trading. The company also shows signs of slowing growth, has yet to figure out how to make money on mobile, and new shareholders will have little influence as nearly 56 per cent of voting shares will be in the hands of one person: Chief Executive Mark Zuckerberg.

But such warnings are falling on deaf ears as many people are drawn in by Facebook’s brand name and the fact that one in seven people around the globe are on the social network. Facebook Inc on Tuesday increased the size of its IPO by nearly 25 per cent and raised the target price range.

The strong demand means that most retail investors will have to wait until Facebook begins to trade on the Nasdaq on Friday to get hold of the shares - and risk getting trampled. If the stock skyrockets, the average person might end up getting orders filled at a price much higher than they wanted and then face the possibility of losses as funds steamroll in and then zip back out, taking the price off its highs.

Facebook is going public after accumulating almost a billion users, nearly $4 billion in annual revenue and a brand name augmented by the 2010 Oscar-winning film ‘The Social Network,’ which charted the rise of Zuckerberg who started Facebook in his Harvard University dorm room.

Most ordinary people have only the slimmest of chances of getting hold of IPO shares as Facebook’s 33 underwriters, led by Morgan Stanley, JPMorgan and Goldman Sachs, are expected to give priority to their most important clients, usually institutional investors. Typically, only five to 30 per cent of IPO shares are set aside for retail investors, underwriters say.

Facebook reported $205 million in first-quarter profit, down 12 per cent from the same period a year ago. While sales leapt 45 per cent year-on-year to $ 1.6 billion, that lagged the 55 per cent growth of the fourth quarter.