It's Facebook IPO Day! Now What?

Today's the day. It's Facebook (Nasdaq: FB  ) IPO Day!

See what I did there? I bolded "Facebook" and added a ticker to it, something we can only do with public companies. Investors have been waiting for years for me to be able to do that. The offer priced last night at $38, valuing the social butterfly at $104 billion, a.k.a. the largest IPO of all time.

That's at the top of the upwardly revised range of $34 to $38 per share, after bumping that up from the initial ballpark of $28 to $35. The company is selling 484.42 million shares to the eager public, and at $38 a pop that comes out to $18.4 billion in capital going into Facebook's coffers. That still trails behind the $19.7 billion that payment processor Visa (NYSE: V  ) raised in its 2008 IPO.

Tale of the tape
Private stock exchange SecondMarket has kindly shared historical pricing data for how the company's shares have traded over the past few years. Here's how Facebook's valuation has skyrocketed over the past few years on the private market.

Source: SecondMarket.

Source: SecondMarket.

That performance even handily trounces the likes of Apple (Nasdaq: AAPL  ) , which has unarguably destroyed the market much as it destroys analyst estimates.

Source: SecondMarket.

Source: SecondMarket.

The private exchange also tracks data on who's doing the trading, with more than half of buyers being either hedge funds or asset managers. Just 14.8% were accredited individuals looking for a piece of the social networker.

Keep in mind that "accredited" means those individuals have to meet certain financial requirements, such as a net worth exceeding $1 million or annual income of at least $200,000 in each of the two previous years (or $300,000 joint income with a spouse), and certify that they know how to invest in illiquid securities.

On the seller side, the bulk of sellers were former employees at 79%, while early investors comprised 12.4%.

Facebook saw its number of transactions steadily rise as interest snowballed in the past few years, and while that means more liquidity, that's still very much illiquid any way you slice it. At the peak, which was the most recent quarter, we're still talking about only 137 transactions during an entire quarter.

Source: SecondMarket

Source: SecondMarket

By just about any measure, Facebook had quite an incredible private run.

Quit living in the past.
But that was then, and this is now. Will the largest social network in the world be able to translate that success into public triumph?

At this point, instead of needing a $1 million net worth or $200,000 in annual income, any Joe off the street with $100 in his pocket can potentially buy in.

From here on out, instead of having to answer to a handful of private investors, Mark Zuckerberg will be tasked with appeasing millions of public investors who will want to have his head if he makes a mistake. He'll be scrutinized by industry watchers and regulators at the SEC. He'll need to be mindful of the all-important "consensus estimate" every time Facebook publicly reports quarterly earnings results.

Is it worth it?
The $100 billion question on everyone's minds is whether Facebook can live up to its lofty valuation and triple-digit P/E. Even though Facebook has generated less than $1 billion in net income over the past four quarters, it has a massive user base that shouldn't be taken lightly.

All Facebook needs to do is figure out how to better monetize all those Facebookers who are hooked on "liking" and commenting on the site.

The newest Wall Street metric: "likes."
I bet you never thought you'd see the day when the Street would care how much you "liked" that adorable photo of your wife's cousin's newborn baby. Well guess what? Today's that day. As one of the metrics that Facebook tracks as a proxy for engagement, the Street and advertisers alike will be keeping an eye on that figure to see whether all those Facebookers are still paying attention.

Good luck, Zuck. Judging from the market's early reaction, it certainly isn't convinced. However, we did see one recent social-networking stock that the market really loved on its first day, a stock our chief technology analyst sees as an even better opportunity than Facebook. To learn more about the one social-networking stock investors should be buying, check out our free research report.

Fool contributor Evan Niu owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Visa and Apple and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (43) | Recommend This Article (54)

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  • Report this Comment On May 18, 2012, at 4:01 PM, griderX wrote:

    "The company is selling 484.42 million shares to the eager public, and at $38 a pop that comes out to $18.4 billion in capital going into Facebook's coffers."

    Have you looked at the trading volume 567 Million shares changed hands! WOW! Talk about churn!

  • Report this Comment On May 18, 2012, at 4:37 PM, mikecart1 wrote:

    1st earnings report is going to either make this stock go up a lot higher or drop big time. The problem with Facebook is that customer quantity is not the issue. This is the issue with like 99% of all other companies that are traded. A quarter comes out and a company will say they lost X% customers or they have sold X amount of a product to X customers last quarter. Facebook already has nearly 1 billion customers. Most likely everyone in the world that has access to a computer, has food to eat, and has a place to sleep has signed up to Facebook. To say that they will grow their user base any further is unrealistic. It will grow with population which is somewhat slow in this scenario.

    So you must say, at what point and what needs to occur for Facebook users (the ones that sign on daily to chat with friends and post pictures or to stalk people) is going to also click on something and buy it?

  • Report this Comment On May 18, 2012, at 4:43 PM, akbuyme wrote:

    I'm relatively new to all this, so much of it goes above my head. But how much of the initial volume was underwriters, and shareholders cashing out?

  • Report this Comment On May 18, 2012, at 4:58 PM, ArbiBaby wrote:

    Must be a good model...I have bought based on reading (and liking) the piffle that shills write as Fools. Everything is an ad or a tease. Even news has left the exaulted inverted pyramid of delivering the important first soas to garner page hits and click through traffic. Call me if you want to go havsies on a brother's Millennium Universal Be All End All portfolio. Oops.

  • Report this Comment On May 18, 2012, at 5:01 PM, sikiliza wrote:

    Ha! The biggest rip-off of the decade. Now we wait till Monday and see how much further the underwriting syndicate can prop up the stock. At $20B networth, I expect Mark Zuckerberg to close at $10B.

  • Report this Comment On May 18, 2012, at 5:01 PM, sikiliza wrote:

    Ha! The biggest rip-off of the decade. Now we wait till Monday and see how much further the underwriting syndicate can prop up the stock. At $20B networth, I expect Mark Zuckerberg to close at $10B.

  • Report this Comment On May 18, 2012, at 5:18 PM, 102971 wrote:

    I agree with sikiliza. This was simply a dog and pony show. I can see no justicification whatsoever for the ridiculously high p/e ratio.

    I am short at $43.20.

  • Report this Comment On May 18, 2012, at 5:40 PM, jh4290 wrote:

    the NASDAQ screwed up the whole thing on FB could not handle the volume. I had an order in at $45.00 limit that didn't get filled when the stock was trading at $41.00. I canceled that order and placed one at $40.00 market closed and did not fill. Zuckerberg should call in the lawyers he could have made a lot more if the system functioned as mit should.

  • Report this Comment On May 18, 2012, at 5:40 PM, JEMSS wrote:

    Given the Investment Bankers had to artifically prop up the stock at the end of the day, I believe that TOO many shares were issued.

    Facebook must monetize: 1) Mobile, 2) Analytics for Brands (ala Google), and 3) Penetrate BRIC (Brazil, Russia, India, and China)

    to meet revenue growth models.

  • Report this Comment On May 18, 2012, at 5:55 PM, pauldelang wrote:

    Lots of P with low E must have plenty of faith in future earnings growth to buy this stock right now. People goes on FB to chat and visit for free and not to spend. FB uses your free information to sell to advertizers your likes and dislikes. FB should be paying you for your information.

  • Report this Comment On May 18, 2012, at 6:02 PM, TMFAleph1 wrote:

    <<From here on out, instead of having to answer to a handful of private investors, Mark Zuckerberg will be tasked with appeasing millions of public investors who will want to have his head if he makes a mistake.>>

    They can want all they like; given the size of his equity stake, the dual share structure and the agreements that are in place with other insiders, there is absolutely nothing that outside shareholders can do if they disagree with the way Zuckerberg runs the company -- he has total control over it.

  • Report this Comment On May 18, 2012, at 6:04 PM, TMFAleph1 wrote:

    <<All Facebook needs to do is figure out how to better monetize all those Facebookers who are hooked on "liking" and commenting on the site.>>

    That's "all" it has to do? I do hope you're being sarcastic.

  • Report this Comment On May 18, 2012, at 6:48 PM, NCRICK wrote:

    FB is a lot more hype than substance. The underwriters had to prop it up on day one. Expect all the clients of the wire house brokers to be pushing the stock hard to wealthier clients come Monday. I expect within 2 or 3 months the stock will be in the mid to high 20s. The underwriters fees have to come out of the take sooner or later.

  • Report this Comment On May 18, 2012, at 6:48 PM, jssiegel wrote:

    Mikecart1 is right - their market is saturated. It was a big jump today, but if you look down you just might see a shark. I'll watch it a while to see when it's time to buy some puts.

  • Report this Comment On May 18, 2012, at 6:48 PM, davion13 wrote:

    I really wish options were being traded on FB so I could load up on puts...

  • Report this Comment On May 18, 2012, at 7:21 PM, Philmoco wrote:

    I only need to know one thing about the Facebook IPO - WB isn't even thinking about getting his bargepole out!

  • Report this Comment On May 18, 2012, at 8:24 PM, MichaelHamilton wrote:

    Facebook is is not as good as Google+

    The current valuation assumes it will be worth $1 trillion in less than 10 years. It will never happen.

  • Report this Comment On May 18, 2012, at 8:26 PM, TaylorsTickers wrote:

    "Be fearful when others are greedy...Be greedy when others are fearful" - Warren Buffett

  • Report this Comment On May 18, 2012, at 8:59 PM, FutureMonkey wrote:

    I was a buyer today with a tiniest opening position that kept my $7.95 broker fee to less than 2% of my cost basis. You can do the math on that if you want.

    This is random speculation money and not reflective of my actual investment strategy. But really, what if....? Don't you want to be able to tell your grandkids 40 years from now...the time you bought FB on IPO day -- big story no matter which way the investment turns out.

    If I can't be a shining example, perhaps I can be a horrifying cautionary tale! Either way I win. Just remember, nobody likes to hear stories about the time you sat on the sideline and made snarky comments.

    FM (long Facebook ... who knew)

  • Report this Comment On May 18, 2012, at 9:27 PM, Hawmps wrote:

    Too much greed, not enough fear... I'd strongly consider a short-term short-position.

  • Report this Comment On May 18, 2012, at 10:09 PM, DaveW2012 wrote:

    Ya know, I just happened to be monitoring both FB and Google on Yahoo real-time quotes, and in the last hour, MILLIONS of dollars were leaving Google about as fast as FB was finding itself with relentless bids in the MILLIONS of shares! Coincidence?

    So as Google slid from -$5 to $8 all day, it suddenly slid to -$23 when all was said and done, while a good 100 million+ shares of FB were being picked up at FB, defending that almighty $38 threshold.

    If anyone thinks for a second that the half a billion volume means anything less than underwriters and HFT algos at work, then you should probably not be within 10 feet of this stock. Pure manipulation of the markets.

    Lord knows FB wanted SO BADLY to drop below $38, and into the toilet. We'll see if Google and the rest get their rightful share back on Monday, and we'll see if the market makers can sustain that game any longer than IPO day and beyond.

  • Report this Comment On May 18, 2012, at 10:33 PM, DaveW2012 wrote:

    p.s. And the very fact that the share price bounced off the $38 mark, to $38.01 and back to $38 (well over a hundred times in the last hour) without EVER breaking below, is all you need to know. That stock wanted to drop like a rock. So shareholders, beware of what awaits when they stop defending that $38 mark. Get out while you can. The fix is in.

  • Report this Comment On May 18, 2012, at 11:34 PM, cmrk3 wrote:

    Q. why is Facebook going public?

    A. they couldn't figure out the privacy settings! :)

  • Report this Comment On May 18, 2012, at 11:39 PM, HarryCarysGhost wrote:

    FutureMonkey-

    Did you make a $389.55 wager on this?

    I'm picking up a share at some point, just for fun. And I got a killer joke for the blog that will follow :)

  • Report this Comment On May 19, 2012, at 12:33 AM, Solomon199 wrote:

    FutureMonkey-

    40 years from now your grandkids will say Facewhat? Never heard of it.

  • Report this Comment On May 19, 2012, at 12:42 AM, gdf55 wrote:

    P/E = 100 is not for the faint of heart. On the other hand, $1B in earnings last 4 quarters is respectable and I don't think they've done more than scratch the surface of the the monetization opportunity. Still, it seems likely we'll be able to pick up shares a lot cheaper in 6 months or whenever the lockout period is up.

  • Report this Comment On May 19, 2012, at 7:32 AM, daveandrae wrote:

    Anyone that asked the basic question of "how much?" wouldn't buy even one share of this ticking time bomb. You will get far more for your money buying a pair of blue jeans from Target.

  • Report this Comment On May 19, 2012, at 9:47 AM, jcarterwc wrote:

    What if FB decides to charge each page/user $1 a year? Probably most people will pay since it's not much, but that may increase revenue. Otherwise, I don't see how any money can be made for new investors - the old ones just cashed out on the new ones' money!

  • Report this Comment On May 19, 2012, at 9:59 AM, applefan1 wrote:

    Would someone give me a straight HONEST answer to this question?

    Who started the market capitalization of Facebook being $100 Billion? It stated this type of amount on Yahoo! Finance yesterday, but for some strange, magical reason, it now lists $51.6 Billion.

    Now, how do we NORMALLY calculate the Market Cap, and P/E ratios? Because I'm getting different numbers and I was a FInance Major in college and have been calculating these number for a long time. I never bought into this $100 to $110 Billion market cap before Facebook went public.

    What gives?

  • Report this Comment On May 19, 2012, at 10:52 AM, Archaeologist77 wrote:

    "Only fools rush in"...yeah, I know, but maybe in the case of the Facebook IPO it's better to say "fools try to rush in" but are deterred due to the inability of the broker network of exchanges and routes to fulfill the demand for Facebook orders.

    Check out this article from the GlobeandMail about the tech difficulties and closing price of Facebook after Day 1:

    http://www.theglobeandmail.com/news/technology/tech-news/fac...

    Here's my experience and why I think Facebook has a golden future:

    When the clock hit 11:00 am there was nothing. But I put in my (limit) order for 50% of the amount we allocated for the Facebook IPO. The stock market closed and my limit order was cancelled without execution. I put in a new limit order that I assume will execute on Monday for less than 50% of the amount we intended to invest in FB stock. We will buy more. Why?

    Here are a few things that I think would be cool if Facebook developed and I think might change the perspective of the skeptics of Facebook's long-term prospects as a company and a reward for investors:

    1) Near Field Communication (NFC) - social applications. Basically, a technology that enables devices to communicate with each other by touching or being in close proximity. NFC is in a lot of smart phones and is widely used at present as a payment method for public transport and mobile payments. Apple hasn't yet released an iPhone enabled with NFC. So what does this have to do with Facebook?

    People use Facebook in different ways, but it is one of the easiest ways to connect with new people. You might meet someone and talk for a few minutes and then add them on Facebook later. So the natural next-step is adding them via NFC simply by moving your phones in close proximity to each other.

    Scenario: you go to a party and see someone you want to meet. You have NFC scanning enabled on your phone/Facebook (privacy mode turns it off). You scan the crowd and find people who have enabled NFC. Before even breaking the ice you simply request to add the people in your near proximity. How do you recognize each other? It's Facebook - you recognize the face. By the end of the party or conference or whatever you've met 20 new people because you and the friends you were with added them via Facebook. No need to get any numbers (at that time) or to show any interest or non-interest. Just be social via NFC and Facebook.

    The downside...currently NFC requires a distance of 4 cm or less...so maybe this would work better with Not-so-Near Field Communication? The engineers can figure it out. Maybe Facebook will just have to make their own smart phone?

    2) Near Field Communication (NFC) - commercial applications. Hollywood has been imagining public digital advertising that is customized to the individual. Digital billboards are a reality in super markets via LCD monitors and as monitors get thinner and transparent, we'll see them on the sides of bus shelters, etc. Facebook integration with public Digital advertising via NFC enabled smart phones would mean when you are standing waiting for the bus, the bus stop would post an ad on the glass of the shelter that is customized to you, just like Facebook does now on Facebook.

    Privacy concerns? Nope. If you don't want it, you just disable this option from your Facebook or on your phone. But as for me, it would be pretty cool to see what kind of ad would pop up on the side of a bus shelter. I'm sure it's coming, and NFC-Facebook could potentially lead the way with its close to 1 billion users, that's 1 in 7 people on the planet or 1 in 7 people waiting at the bus stop? Well not exactly, but you get the idea.

    3) Facebook consulting. IBM went this route, moving from just a hardware/software company to a "business solutions" consulting company. Facebook is probably going to go the same route working with companies, big and small, to help them find the best social network marketing solution for their target markets and combine that with traditional advertising campaigns. The people at Facebook who design the world's largest social network are also the people who best know how a company can utilize it for an increase in revenues. A no brainer I think and businesses will pay.

    So...

    With the capital available to the smart people at Facebook led by Zuckerberg, I'm sure there will be a lot of great ideas that will arise, but maybe also they can fix a more basic one: figuring out how to help discount brokers and exchanges introduce efficiencies into the system so I can actually buy Facebook stock when I put in an order.

  • Report this Comment On May 19, 2012, at 11:13 AM, applefan1 wrote:

    Do you know how Facebook gets ad clicks? By accident. Most users don't want viagra, penis enlargements, belong to Christian Singles, and the other low grade advertisers. Most people click on these stupid ad ACCIDENTALLY. Not a good way to make money, it isn't a very safe way to make revenue.

  • Report this Comment On May 19, 2012, at 11:22 AM, applefan1 wrote:

    This company has around 900 million users, but i will guarantee you that there aren't really 900 Million users. There are a lot of duplicate accounts where someone signed on twice, but forgot to delete one account. There are people that run multiple accounts, but only really use one. There are fan sites for various famous people that aren't sanctioned by these famous people, and there are people that simply don't really use it. The rate they are adding new users has slowed down to a crawl.

    I don't see how this company is going to make more money. Much of the revenue is from accidental ad clicks because most users don't purposely click on the ads. I think it is a fad for high school students until they realize that it is a superficial way of communicating.

    For the record, i deactivated my account a few weeks ago. I don't see the value in it. I think how it is being run is silly and therefor I wouldn't be caught dead trying to buy shares of a company that is only making .43 a share and has no real value. Remember, they've been running on VC money, they overpay for small startups they buy, some are questionable as to the validity of the software, and they are going to have to replace the aging servers, storage systems and software they have running these server farms, so we'll find what it really costs to run this business model.

    Personally, i would rather put my money on a REAL business, selling a REAL product that has a REAL track record.

  • Report this Comment On May 19, 2012, at 11:59 AM, FutureMonkey wrote:

    Replies to HarryCarysGhost and Solomon,

    Yep, 10 shares of FB in my porfolio (sadly at 42/shares during the glitchy opening when I couldn't confirm the purchase -- that's $40 of pure stupid).

    Yes I bought shares for entertainment value and to have a story to tell. Even if 40 years from now my grandkids had never heard of Facebook, my peers will have. Then we can sit around making nostalgic comments about FB, American Idol, petrocks, and MC Hammer's pants.

    Again my purchase is not reflective in anyway of my investment philosophy or "wager." I don't gamble with my portfolio, but I do occassional view my mistakes as an investment in "education" So view this holding as part of my Fool University Tuition. I just couldn't get my education without having actual shares

  • Report this Comment On May 19, 2012, at 1:48 PM, nmartell22 wrote:

    This article on MarketSnacks.com I thought had the best summary of what happened to Facebook's IPO and why. Best piece I've seen yet on it:

    http://marketsnacks.com/2012/05/18/facebook-ipo-disappoints-...

  • Report this Comment On May 19, 2012, at 7:27 PM, alan1932 wrote:

    I prefer to wait a while on this one. A lot of users but not a lot of income. Time will tell when to invest in this one.

  • Report this Comment On May 19, 2012, at 7:37 PM, ravens9111 wrote:

    The IPO that everyone should be trying to get in on very soon is the Kayak IPO. That one will rocket.

  • Report this Comment On May 19, 2012, at 9:32 PM, SUPERMANSTOCKS wrote:

    Screw chasing IPOs! Mostly screw Facebook! The debut was a complete bust, and everyone knows it! See you all at 25.00 a share in 30 days.

  • Report this Comment On May 19, 2012, at 10:24 PM, lowmaple wrote:

    mikecart. I hane not. But I agree with you. People could have bought i share of AAPL etc and would be sure to profit.

  • Report this Comment On May 20, 2012, at 6:49 AM, daveandrae wrote:

    "Would someone give me a straight HONEST answer to this question?

    Who started the market capitalization of Facebook being $100 Billion? It stated this type of amount on Yahoo! Finance yesterday, but for some strange, magical reason, it now lists $51.6 Billion.

    Now, how do we NORMALLY calculate the Market Cap, and P/E ratios? Because I'm getting different numbers and I was a FInance Major in college and have been calculating these number for a long time. I never bought into this $100 to $110 Billion market cap before Facebook went public.

    What gives?"

    To Applefan-

    You're making this investing thing more complicated than it is. The only question you should be asking yourself is "If I had 100 billion dollars, would I buy all, not some, but ALL of Facebook?"

    If that answer is Yes, than you should be buying as many shares as you can afford. For investing is most intelligent, when it is most "business like."

    If that answer is No, than why would you buy even one share of the company's stock?

    My opinion?

    It is extremely difficult to become wealthy when you're only getting back 3.7 cents of revenue for every dollar invested.

    Good luck :-)

  • Report this Comment On May 20, 2012, at 6:58 AM, daveandrae wrote:

    I was mistaken.

    As of Friday's close, the market cap of Facebook was 81.7 billion. Thus, if you were to buy the entire business, you would get back 4.52 cents of revenue for every dollar invested.

  • Report this Comment On May 20, 2012, at 3:51 PM, TMFAleph1 wrote:

    @daveandrae

    You're still mistaken -- based on Friday's closing price, Facebook's market capitalization exceeds $100 billion.

  • Report this Comment On May 20, 2012, at 9:30 PM, daveandrae wrote:

    TMF Aleph1-

    I just checked my math on www.cnbc.com....again. It is correct. Sym FB (Facebook)....2.1 billion shares outstanding x's an after market closing price of 38.42 = a market capitalization of 80.682 billion dollars.

    This figure, of course, excludes pending items like restricted stock options, stock held in treasury for future sale, blah, blah blah. Thus, six months from now, all things being equal, a market cap of 100+ billion is entirely possible.

    Why I even bothered with such an exercise is purely academic. For even if you gave me the money, I still wouldn't buy one share of this ticking time bomb

  • Report this Comment On May 21, 2012, at 9:28 AM, mikecart1 wrote:

    "What if FB decides to charge each page/user $1 a year? Probably most people will pay since it's not much, but that may increase revenue. Otherwise, I don't see how any money can be made for new investors - the old ones just cashed out on the new ones' money!"

    This isn't out of the realm of possibility. Maybe even $1 a month. For me, this would give me the perfect excuse to remove my page from there once and for all. Facebook offers zero value for me. Anyone that I want to talk to I can email or instant message, call, or even (I know this is amazing) see in person! Right now I don't see how Facebook can flip the script on what billions of internet users have been trained on since the internet began - 'don't click on things you aren't sure about' (banners, ads, links, etc.)

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