One of the most anticipated IPOs in a long time is about to drop today – Facebook. This post will be published around 7am and when the markets open at 9:30am, chances are the initial public offering for the largest social network kick off with a price between $28 and $35  (they raised it to $34-38  late Monday this week… before settling on $38). All in all, given how many shares will be made available, Facebook will raise around $13.6 billion and have a valuation less than the $100 billion many expected. Either way, IPOs were exciting during the dot com boom and they’re exciting again.
Will you buy any shares?
I won’t. When you buy into an IPO, you’re gambling. I’d rather lean over a craps table and foolishly put money on the pass line. At least I think I’m having fun while the dice are flying. I don’t want to gamble with shares of an IPO, in any industry, because it’s really a crap shoot. If you get shares before they trade publicly, you might have an edge. If you get shares after, you lose any edge you have. You are betting you can sell your shares to someone else who is willing to pay more. Sometimes it works out, sometimes it doesn’t.
If it trades at $35, that’s 70 times it’s projected 2012 earnings. Apple trades at a price to earnings ratio of 13.61. Google trades at 18.31. While they aren’t the same types of companies, in terms of growth prospects, do you think you can sell Facebook to someone at 90 times earnings? Think Facebook can find a way to increase profits? The answer might be yes but you have to recognize that you’re basically gambling.
That said, sometimes it’s fun to gamble. It’s fun to get caught up in the excitement… that’s why I put money on the pass line at a craps table. I know it’s entertainment.