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I had to do a double-take when I saw the headlines on Thursday morning, barely able to believe the number in front of my eyes. $5 BILLION DOLLARS!?!
Facebook going public is not news but speculation has been rife for months as to what price the company would seek and how much interest investors would show in this rather depressed economic environment. I’m sure I wasn’t the only one to spill my morning coffee…
So why does Facebook command such interest when confidence in the global economy is still hanging by a thread? The unfolding tale of Facebook - which began in a Harvard College dormitory in the ‘90’s - has been a very public success story, its triumphs and tribulations played out in full view. Similar to Google, Facebook has sneaked into most of our lives and provides the company with a direct marketing channel to just about everyone in the developed world. Whether the initial float raises $5 billion or not, the secondary market looks to be around the $80- $100 billion mark. To put this in perspective, Facebook’s value is about of two-thirds the GDP of New Zealand!
\So what next for co-founder Mark Zuckerberg? Maybe he’ll buy Tasmania! His holding in a successful post-float Facebook could be a cool $28 billion, so he can pretty much do as he pleases.
\But should investors rush to grab Facebook post-float stock? Betting on post-float momentum can be a risky business. Many investors learnt that lesson when buying Myer shares post-float in 2009, with some losing as much as 50%.
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Facebook cannot be compared to Myer or any other recent Australian IPO. Facebook can more closely be compared to Google, which has provided tremendous rewards for investors since its Initial Public Offering in 2004.
Google’s shares hit the market at just over US$100 and leapt to $700 prior to the Global Financial Crisis. Today the shares still sit at around 500% of their initial float price.
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Facebook has a very different market and product to Google. Facebook is a social medium, offering tremendous value and reach in terms of target marketing, while Google is more diverse, generating countless revenue streams in constantly evolving markets. Google has the ability to reinvent itself but Facebook is at the mercy of changing trends and a market that is among the most fiercely competitive and capricious in history.
The Facebook IPO may well be the biggest news of 2012 but amid the hype keep your eyes peeled for opportunities in the more sound and proven Google.
Stay Ahead Of The Game,
Lachlan McPherson
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