Should You Buy the Facebook IPO Day One?
According to reports, Facebook will begin its IPO roadshow next week. The roadshow will see the company pitching its shares to prospective investors. Facebook's IPO date could be later this month.
The hype surrounding the Facebook IPO has been building at least since the turn of the year. Shares of Facebook have traded on Second Market, but have been halted in preparation of the upcoming IPO. The company's pre-IPO filings and decision to list on the NASDAQ have dominated business headlines in recent weeks.
While shares of Facebook could soar on the first day of trading, investors may wish to wait before diving in. 2011 saw a number of tech IPOs, and unfortunately for early investors, almost all of them are down across the board.
Groupon (NASDAQ: GRPN) priced at $20 back in November before briefly soaring into the $30s on the first day of trading. However, shares are currently trading just below $11.
Pandora (NASDAQ: P) saw a similar fate, as shares priced at $16 before hitting a high near $26. Shares are currently trading near $8.60, just a bit more than half of the original IPO price.
Zynga (NASDAQ: ZNGA) priced its IPO at $10, before trading near $15 in early March. Incidentally, Facebook's IPO filings showing significant revenue derived from Zynga games may have moved the stock higher. Yet, Zynga is now trading below $9.
Still, these stocks are in a significantly different market from Facebook. Perhaps the most comparable comparison is Linkedin (NASDAQ: LNKD), which despite trading down rather significantly from its IPO, has rebounded and remains above its IPO price. Traders who got in near the end of 2011 could have doubled their investment, as shares moved from the $50s in December into the low $100s currently.
Retail traders who cannot get into the IPO may be better off waiting a year to invest in the company. There is a long history of hyped IPOs failing to deliver.
Of course, Facebook may be an exception. Unlike many other IPOs, which are still young companies in their growth phases, Facebook is well established and has an enormous user base. Next to Google, Facebook is the second most visited website, and its CEO--Mark Zuckerberg--is a household name.
Ultimately, investors will have to decide for themselves if the differences between Facebook and other IPOs justifies an early investment in the company.
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