Friday, May 18, 2012

Facebook IPO at $38 a Share, No Thanks!

Is Facebook really worth $104B as an enterprise? I don't think so. I have no quarrel with Zuckerberg and the other Facebook founders making bookoo bucks. But the pricing for Facebook is more about the hope and belief that someday all this info they've gathered on people can be turned into earnings and cashflow, something that may or may not materialize. As with all tech IPOs, investors buy on the belief that trees grow to the moon, or that a greater fool lurking somewhere around the corner will buy from them at a higher. Time will tell whether Facebook becomes one of those rare tech companies that actually grows long-term or is a short-term fad. I'm not willing to take that bet at these prices, or even use their product to divulge my private information for their exploitation.

Update 1:  My quick back of the envelope calculation would give Facebook a generous $30B valuation, significantly below where it closed on Friday.  I doubt it will drop this far anytime soon, but investors should be wary of this stock until it proves it has sustainable, long-term earnings power.

Update 2: Despite shedding almost 7 points in 2 trading days from its IPO, Facebook still looks ridiculously expensive. An overly generous PE of 50 on earnings of $0.31 a share would indicate a fair value of $12.50 a share. A decent entry point for speculators is probably in the single digits.


  1. With the Facebook bust, I think the public has wised up on internet stocks. I will not be buying this. I am sticking with my boring index funds.

  2. Good call Grouch.

    As long as investors keep getting suckered in, the VCs and inverstment banks will keep floating IPOs like this. I hope the Facebook IPO becomes a turning point for naive investors and they avoid stinkers like this in the future.

  3. Facebook was one of the worst IPO'S of all time. The problems just started from the second the company went public. I am not very impressed with their business model its really all based on advertising and nothing much else.