IPO Update: Facebook

In a previous posting about the Facebook IPO, the IPO was described as a potentially overvalued, high-risk, high-return investment.  Facebook filed for its IPO on February 2, 2012 and the offering date has not been announced.  Yet shares are very liquid in private market auctions where institutional and retail investors alike are seeking early positions well before the public offering.  For example, a trading frenzy on January 20, 2012, ignited a 24% surge in Facebook’s share price, from $34 to $42, boosting the pre-IPO market cap to $105 billion.  The price might still be rising and it’s possible that revenues from the IPO will reach $10 billion.

Private investors hope to benefit in the following ways:

  1. Retail investors will have difficulty buying shares in the public market at the IPO price.  Buying in the private market would provide an early position.
  2. Current holders may want to sell out before the 180-day post-IPO lock up period, during which insiders are not permitted to trade with the public.
  3. The offering price may be higher at time of the IPO than at current pre-IPO trading prices.

Alternative strategies for retail investors include,

  1. Purchasing shares in the public market after the public offering, either entering quickly or waiting for price stability.
  2. Purchasing shares of a social network ETF (SOCL) on the chance that the fund will invest in Facebook.


MARKETS: Hot Item: Pre-IPO Facebook Shares, By RANDALL SMITH and SHAYNDI RAICE, FEBRUARY 28, 2012. Wall Street Journal .

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