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Soooo...would anyone here actually plop down their hard earned IRA money on some Facebook stock?


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#1 moed_over

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Posted 06 May 2012 - 03:33 PM

Facebook IPO is coming up, and is all over the financial news. Would any of you buy the stock if you could with your retirement funds, or even straight up from your savings?

There were some interesting answers on another board. What do you think?

Here's an article with reasons not to...


http://money.cnn.com...x.htm?iid=HP_LN

5 reasons to not 'like' Facebook's IPO



NEW YORK (CNNMoney) -- I sort of "like" Facebook as a company and service.

I am one of the social network's more than 900 million members worldwide. Odds are you have a Facebook account too. (Although my page is as barren as the Arctic tundra. I mainly go on just to see what my wife posts about our son.) However, I do not like Facebook as a stock that seems destined to go public in a few weeks with a marketvalue of around $100 billion. I've already done ananalysis of Facebook's valuation compared to rivals three months ago when Facebook first filed for its initial public offering. My colleagues at Fortune have taken another look today.

But since Facebook (FB) first filed back in February, I've noticed several additional things that give me pause. Here are five.

Slowing growth? Already?Facebook's sales surged at a phenomenal clip for the past few years. Revenue rose by more than 150% in 2010. Sales were up nearly 90% last year. But in the first quarter of 2012, revenue was up just 45% from the same period a year ago.

Don't get me wrong. This level of growth is astounding. But Apple's (AAPL, Fortune 500) top line is expected to rise 50% this year and its stock doesn't trade at 100 times trailing earnings.


What's more, Facebook's first quarter sales fell 6% from the fourth quarter of 2011. Revenue was unchanged from the fourth quarter of 2010 to the first quarter of 2011.

Isn't it a little early for a company like Facebook to be showing signs of the "seasonality" that you usually associate with more mature, cyclical businesses?

Rising expenses. Facebook says in its IPO filing that this is one of its five core principles: "Be bold. Building great things means taking risks. This can be scary and prevents most companies from doing the bold things they should. However, in a world that's changing so quickly, you're guaranteed to fail if you don't take any risks."

That's a laudable attitude to have -- but it sounds a lot like a start-up mentality.

With Facebook set to graduate from private company to one with pesky institutional shareholders, investors aren't going to be thrilled to see earnings growth declining because of rising headcounts, more capital expenditures and pricey acquisitions. Net income fell 12% in the first quarter as costs and expenses doubled from a year ago.

Sure, Facebook may be spending more for the long-term good of the company. But Wall Street is still very myopic. I applaud Facebook's management for being willing to take risks. The Fidelitys of the word may not be so forgiving if risks translate into quarterly earnings misses. Just ask Google (GOOG, Fortune 500), Apple, Netflix (NFLX) and many other momentum tech stocks on those occasions when profits didn't live up to expectations.

Zuckerberg bought what? The purchase of Instagram for more than $1 billion may turn out to be a brilliant deal. But it could also be acolossal waste of money.

Facebook investors should be prepared for the company to make more big purchases; Facebook admitted as much in its IPO filing. And because CEO Mark Zuckerberg controls a majority voting interest in the company, he may do deals that investors ... or even Facebook's board .. may not like.

While Google has done a solid job integrating multi-billion dollar deals like YouTube and DoubleClick, it remains to be seen if Facebook can also pull off a string of purchases. Yahoo (YHOO, Fortune 500) hasn't done so well with its litany of acquisitions.

Here's hoping COO Sheryl Sandberg (aka the adult supervision at Facebook) keeps Zuckerberg from overspending for something like Pinterest or whatever Silicon Valley's next social flavor of the month is.

Facebook is a media company. This fact seems to be lost on a lot of people. Like Google, Facebook generates most of its money -- 82% in the first quarter to be precise -- from advertising. That is a notoriously fickle business. Mainstream media firms like Walt Disney (DIS, Fortune 500), News Corp. (NWSA, Fortune 500) and CNNMoney parent company Time Warner (TWX, Fortune 500) don't trade at triple-digit earnings multiples. Neither does Google.

Somewhat curiously, Facebook includes a metric in its IPO filing that cable companies and wireless carriers such as Comcast (CMCSA, Fortune 500), AT&T (T, Fortune 500) and Verizon (VZ, Fortune 500) use to show how much money they generate from their customers. The number is known as average revenue per user, or ARPU.

This may be an attempt to highlight Facebook's growing revenue from non-ad sources like its payment business. Facebook gets a 30% cut of fees tied to transactions using Facebook's virtual currency.

Problem is, Facebook's ARPU is abysmally low. It was just $1.21 in the first quarter of 2012. While that's up 6% from a year ago, it pales in comparison to eBay's (EBAY, Fortune 500) PayPal unit, for example. PayPal generated $1.3 billion in revenue from 109.8 million customers in the first quarter of 2011. That works out to almost $12 per user.

Everybody is gunning for Facebook. It would be silly to suggest that any company will soon do to Facebook what Facebook did to MySpace. But it would be equally absurd to suggest that Facebook will remain the undisputed leader in social forever.

There is a lot of anecdotal evidence that more and more young Internet users are shifting to Twitter from Facebook. Google+ may still be more Diet Facebook than a true rival, but can you really count out a company that has $49.3 billion in cash? (That's almost 13 times the amount Facebook has.)

Internationally, Facebook has so far avoided China. It's not clear what the company plans for that key market. But if Facebook does decide to bulk up there, it will face intense competition from the likes of Tencent, Sina (SINA) (which owns China Twitter equivalent Weibo) and Renren (RENN).

Finally, the strong earnings of LinkedIn on Thursday -- and since it went public last year -- may be a sign that many professionals are using that site, and not Facebook, to network for career purposes.

And LinkedIn (LNKD), which Facebook interestingly mentions in its IPO as a peer for compensation purposes but not as a direct competitor, actually has a far less risky business model. Only 26% of its revenue comes from ads, a division LinkedIn calls marketing solutions. LinkedIn generates 54% from companies that pay to post job listing. The remaining 20% comes from subscription fees.

When you take all these risks into account, I really struggle to justify a $100 billion valuation. Facebook is a great company, a game changer in many respects. But it's not worth the considerable hype.

Facebook's beloved social graph could be replaced by a stock chart that points downward after the initial euphoria fades.


#2 PeaceFrog

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Posted 06 May 2012 - 04:00 PM

IPOs are too risky in my opinion.

I'd rather wait a day or a week and see what happens before I buy. Sometimes IPOs drop significantly the very first day.



#3 moed_over

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Posted 06 May 2012 - 05:33 PM

I have a feeling that the first day of trading will be insane for this. I'm expecting it to be highly over priced by the end.

#4 kramer

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Posted 07 May 2012 - 04:22 AM

Definitely sounds overpriced. Great evaluation!

#5 Smiles

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Posted 07 May 2012 - 05:05 AM

Facebook is buying icanhascheezburger.com next week for 15.2 billion dollars. I heard they were gunning for pets.com too.

#6 PeaceFrog

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Posted 18 May 2012 - 08:14 PM

only up to $38.23 from the $38 at the start of the day. Now during after hours trading it's back down to $38.06...

seems the general consensus is to wait and see...

#7 Julius

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Posted 18 May 2012 - 08:25 PM

I waited to see if the underwriters would defend the offering price in the market and they did. It pinned at $38 several times and refused to go a penny lower, which means it is being backed by a reserve fund. So I bought some at $38.04.

Knowing how much downside you have is key, so to limit risk if they stop defending the $38 price level, you should put a stop-loss at $37.95. If it breaks $38 to the downside the bottom could fall out.

#8 Deadshow Dan

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Posted 18 May 2012 - 08:28 PM

Interesting take Julius

#9 PeaceFrog

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Posted 18 May 2012 - 08:48 PM

yeah thanks... makes sense

#10 PeaceFrog

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Posted 22 May 2012 - 06:07 AM

down to 34.03...

how low will it go?

I'd pay $3.43

#11 moed_over

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Posted 22 May 2012 - 12:19 PM

down to 34.03...

how low will it go?

I'd pay $3.43


I think it will drop for another few days and then settle. Could be wrong though.

#12 Julius

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Posted 22 May 2012 - 01:02 PM

Well, if you didn't put a stop-loss under $38, you got exactly what you deserved.

Now you have to see capitulation to know when the sellers are flushed-out.

#13 TakeAStepBack

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Posted 22 May 2012 - 02:35 PM

The shares were overpriced to start. I heard this morning it's down 11%, a 2 billion knock out witha bunch of hiccups getting shares through.

I believe it will continue to tank until it reaches a real market value. Prolly $10 or so prolly. So if you bought in first go I would cut my loss and pull out.

#14 Spidergawd

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Posted 22 May 2012 - 03:06 PM

lolfailbook

#15 u.s.blues

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Posted 22 May 2012 - 03:14 PM

ira..? lol

#16 PeaceFrog

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Posted 22 May 2012 - 03:25 PM

what were the answers you read on the other board, moed?

Julius, do you think people are short-selling it?

#17 Julius

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Posted 22 May 2012 - 04:36 PM

Julius, do you think people are short-selling it?


No, just selling. You can't short it yet, there aren't any shares available to borrow. Believe me, I tried!

When a stock breaks known support, sell first and ask questions later.

#18 PeaceFrog

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Posted 23 May 2012 - 03:14 AM

very interesting. thanks again for your insight.

down to $31.00 right now... I think I might buy some when it does finally hit a bottom and start going back up again. It's definitely actively traded and probably will be for a while...

The sellers must be people in the company that want their paper millions to be real money.

#19 Julius

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Posted 23 May 2012 - 04:23 AM

It will be interesting to see where the big boys start buying it. $28 was the low end of the initial price range so that's the first target on the downside.

And by that I do NOT mean to buy it there. This thing is a disaster on so many levels. Do your homework on when the lockups expire, those will be the next big events that put downward pressure on the price.

#20 PeaceFrog

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Posted 23 May 2012 - 04:55 AM

ok I will, thank you..

yeah don't worry about me doing anything too ridiculous. I got that out my system already and now I'm becoming more educated about trading and patient... which really is the big key... there's good trades all the time... no reason to get in a trade that wasn't properly thought through.

I will wait for it to actually bounce off a price a couple times on at least 2 different days then buy.

#21 PeaceFrog

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Posted 23 May 2012 - 04:59 AM

ahh... so insiders can't sell any of their shares for 90 and 180 days after the IPO... It said August 12 or something...

and yeah those would definitely be good times to buy.

#22 moed_over

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Posted 29 May 2012 - 04:27 PM

what were the answers you read on the other board, moed? Julius, do you think people are short-selling it?


Here's the thread on PT....

http://phantasytour....s/3086746/posts

Facebook drops below $30 today

http://money.cnn.com...x.htm?iid=HP_LN

#23 Deadshow Dan

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Posted 29 May 2012 - 04:58 PM

Option trading started today, I heard

#24 Julius

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Posted 29 May 2012 - 05:05 PM

Option trading started today, I heard


You'll appreciate this, the first options activity today was buying of the 30/25 june put spread.

To translate for others: This means traders are betting it would fall below $30 (which it already has) but will stay above $25.

#25 TakeAStepBack

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Posted 29 May 2012 - 05:54 PM

$10.

#26 Lazy Lightning

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Posted 29 May 2012 - 05:55 PM

Did you hear the news?

They're renaming the planet "Facebook" :coffee:

#27 williscat2000

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Posted 29 May 2012 - 11:41 PM

nope. i don't see where the money is going to come other than advertising. maybe that is enough.

here are some long term recos: VMW, CLB, BNNY

#28 PeaceFrog

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Posted 30 May 2012 - 04:03 AM

about tree fiddy

#29 Eco

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Posted 30 May 2012 - 04:20 AM

nope. i don't see where the money is going to come other than advertising.


Nope, that has been it's epic fail from the start....the ads are not able to make money like on Google and such. The content is so good (matter of opinion) that nobody is clicking on the UNrelated ads. Then again Google is still fighting this battle on YOUtube but I'm guessing Vevo is helping with the forced ads.

#30 PeaceFrog

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Posted 30 May 2012 - 05:51 AM

Here's the thread on PT.... http://phantasytour....s/3086746/posts Facebook drops below $30 today http://money.cnn.com...x.htm?iid=HP_LN


Thanks for those interesting links... the most balanced view of this whole thing is probably Warren Buffet (which I read in that thread... if it's true) said he wouldn't buy it but he certainly wouldn't short it either...

I can't believe shareholders are suing the underwriters.