Facebook Goes Public: Should You Invest?

I come from a finance/investing background, so I thought I share my thoughts on Facebook going public.

There are two main issues to contend with here:

1) Is Facebook a company with a competitive advantage that can be sustained?
2) Is it worth paying $x for Facebook?

Considering point 1), I don't think that anyone is going to dispute that Facebook is an extraordinary company with an enviable operating position. However, the issue is the price paid. So based on the figures available, Facebook earned about $1 Billion, and plans to go public with an estimated market cap of about $86 Billion.

In other words the price/earning ratio would be about 86, which is staggering, even if you take into account its future growth prospects. You can also think about it in terms of earning yield. If Facebook was a business, putting your money in at the current price would only give you an earnings yield of less than 1.5%

The reverse argument can be made that Facebook will continue to grow, and that it has yet to monetize its user base effectively. These are all good arguments. The problem is predicting the future of a company is notoriously difficult, and for every Microsoft or Oracle, history is littered with companies that have gone bust. Just think about the Dot Com debacle.

Finally, as a rule of thumb, companies normally IPO when they get a good deal for themselves, and not for their investors. After all, their goal is to raise capital at the best possible rate for themselves. So more often than not, you rarely get a good deal from IPOs.

Just food for thought.

Cheers

PS: My train of thought and reasoning is heavily influenced by Benjamin Graham (Warren Buffett's teacher), so I definitely lean towards the "Its easier to make money by not losing it in the first place" mindset.

Many of the largest institutional investors are circling around and ready to pounce on it. But Facebook's expected IPO offering will be three times more expensive than Google was at its IPO — and nearly 40 times more expensive than the average large IPO of the last four decades. Maybe, just maybe — it's worth a shot.

Definitely worth investing, FB is now, FB is the future. It will have more and more users and more corporate companies will be willing to spend their top advertising & marketing dollars on it.

Hey I want to agree with you, but then when I see MR. JP MORGAN is handling all this FACEBOOK IPO and they have a huge interest in this, then I started to think FB is not going anywhere south soon, if you know what I mean.

I don't think Facebook is going anywhere anytime soon but I'm not ready to invest in it anytime soon either.

the price is well overprice, even though its a great young company I think the numbers are playing are far to big.

The thing is nobody can really price it right for now, or the near future.

Facebook started to go down when timeline came and a lot of users complained about this. Don't know if you can still revert to the old one.

Buying and holding maybe the best strategy to approach this, rather than thinking you'll make a quick killing like some people plan. The only thing that will get killed quick are the speculators.

The more nimble site setups like Pinterest are going to win.

FB is so freakin' clunky and outdated.

Companies and ideas spring up on a whim and a year later sell for $1B (instagram)

If I were Big Z I would RUN to the bank on Monday morning and cash out like a MO FO

Any new Warrior Forum millionaires today?