Oh Noes! The Facebook IPO!

Posted May 18th, 2012 in Investing by Jeremy Waller

Today is the big day. The day that Facebook goes public and makes Mark Zukerberg the 29th richest person in the world.

It’s unreal how much hype is surrounding this IPO. I don’t know if it’s because it’s one of the biggest IPOs in history or if its simply because it’s Facebook.

I’m sure there’s no shortage of people that will be doing everything they can to grab a piece of the action as soon as the opening bell rings.

I think those people are fools.

Facebook is incredibly overpriced at $38 – the price it is set to start trading. (Though there’s no way you could actually buy it at that price today. FB it going to pop like you wouldn’t believe today.)

At $38, Facebook will trade at 65 times projected earnings for 2012. 65x is nuts!

Google is currently trading at 15x projected earnings for 2012 and Apple is currently trading at 13x.

Oh, but I’m buying Facebook on future earnings. I’m getting in at the bottom!

Oh you are?

Are we looking at the same data here?

Well, we probably are – you just don’t care.

Let’s be realistic here folks. Everyone buying Facebook today is doing so on pure speculation.

The fundamentals simply do not support the pricing of the IPO.

But, people simply don’t care.

They look at Google’s IPO in 2004 with was priced at $85, immediately rose above $100 and continued to climb to $400 in less than 1 year.

There’s a very significant difference in the IPOs though. Google was priced cheaper compared to earnings and Google had more than double the revenue growth in the quarter before its IPO than FB has.

Even if Facebook can achieve 50% earnings growth year-over-year, $38 will still be 40x earnings.

Ding! Ding! Ding!

There goes the opening bell.

Grab you bucket of popcorn and get ready to see an opening pop like you’ve never seen before!


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