Facebook is now introducing its first public offering which is getting a lot of attention as this is a rapidly-growing company.
You should be getting all your savings to invest into the best IPOs this year and use these investments to get great benefits. This is because investment in Facebook is sure to make good money for you. However, you will have to think of thousand other aspects while thinking of keeping your money safe and invest in best possible option.
Facebook stock symbol is : FB
Lessons From History
You should totally avoid thinking of buying stocks on the initial public offering day. This is because this is the point where values will keep fluctuating and there is equal possibility of losses as there are of profits. There are many examples including Groupon, Zynga and LinkedIn which got lot of fame when they introduced their IPO but people lost lots of money for their investments after that.
Zynga unlike others has a different tale. For now, Words-With-Friends and FarmVille are basking with the filing of Facebook IPO. This proves the Facebook’s world’s most revenue generating company. This suggests that stock prices are higher than the opening prices.
Exceptions Of the Rule
On the other hand side, there are some exceptions of this belief which did not have volatile values.
For example, value of Google shares is much higher than the opening day value in 2004. Furthermore, its worth is six times more than value at that time. However, Google’s initial share value was just $27 and Facebook’s value is $100. This means it will take much longer to grow as much as Google has. In fact, only doubling the value will take much time.
Get in Line
You have to keep in mind that some Facebook shares are already distributed. You can check details about this and see who is getting rich on the IPO day. But if we see the offered shares of value $5billion in month of May, most of them are already being occupied. This means now the remaining is much less. The banks that had role in IPO will get the maximum profits (almost 90 percent).
The bottom line is that you will not be able to buy lower price stocks. The opening price will be much higher than the prices that will be in the coming weeks. So, you must care of this fact while taking decision of your investment in stock.
Is That All About Facebook?
If we compare Facebook with Google’s starting point, its revenue is much higher than the Google’s profits in 2004. The Facebook’s revenue is $3.7 billion and profit of $100 whereas Google’s revenue was just $1 billion and profit of $100. Thus, Facebok has much better position. This is why Facebook seems a much better option for investing with much more profitable starting expectations.
Contrary, the following facts might give you a push to make an investment in Facebook
• Facebook (with the “FB” ticker symbol) can be predicted to be the one of the most expensive U.S. stocks with 24 time’s higher price of the company’s revenue. The average ratio of U.S. companies is 1.4.
• There is a lot of room for improvement when you begin your user base.
• Don’t look for investment in China because of the censorship of the government. Facebook’s presence in China is 0 percent and its national social networks are performing much better in the country.
Are you still Interested in Buying Facebook Stock
It is recommended not to buy the initial Facebook stocks. It will be best to buy stocks with a little risk but still keeping your money safe is very important.
If you are big fan of Facebook even then you have to think about the IPO shares of the Vanguard and Fidelity. You just have to take a good Facebook action. Just buy Facebook mutual funds.
How to make an investment in Facebook
States will sell lottery tickets of worth up to $30 billion this year even when there are many possible reasons for not buying such scratch off tickets of lottery. This is just a estimation of initial offering of Facebook. It went through the process of completing paper work with regulators on Wednesday to be able to sell shares this spring.
History suggests that you should not buy its shares. The reason is that most IPOs, because of representation of extremely informed investors who are choosing to sell, results in money loss. Examples of such IPOs include Groupon, Zinga and LinkedIn who faced a lot of loss on first day of their opening.
Not just history, valuation also recommends not buying. Facebook earned revenue of $3.7 billion is last year and the post-IPO market value is estimated to be between $75 and $100 billion. It can be predicted to be most expensive American stock with more than 20 times revenues. The average ratio for U.S companies’ price-to-revenues is around 1.4. The most growing stocks (like Intuitive Surgical and Red Hat) have max ratios of 8 to 10.
Some investors will still be interested even knowing these facts and there is a probability that they may make profits, very good profits. However, an exception example is of Google. In 2004 they started selling their shares and the value was small on IPO. However, the value has multiplied up to five times now. Moreover, if we assume that Facebook later wants to carry follow-on contribution, company will itself be interested in raised stock value after IPO.
So just stop thinking about whether to take use of Facebook IPO or not. In the following lines, it will be discussed how interested investors can make successful investments as most investors will have to buy on regular trading prices rather than subscription price.
Avoid buying at opening time
History tells us that most of the IPOs, apart from Google’s exception, closed at much lower prices on their opening day. There was a huge difference between the opening price and closing price of that day. You should wait to make an investment when the value gets 5 percent lesser then the opening price. If this plan does not work, you can simply choose the market order before its closing.
Avoid attention to statements and analysis that involve the term “network effect”
Valuation is a useful check for estimating long-term performance of company’s stock. There are methods now to determine cheaper stocks by analyzing some factors. You can predict future stock value of Google, Apple, Intel, Cisco System and Microsoft companies using their market value of stocks, growth projections, cash flow, cash-on-hand and earnings. You can skip the long-term estimations of income of the company. Similarly you can guess the future value of the Facebook stock values.
The term “network effect” is used for valuable (good, services, etc) whose values increases as their number of users increase. However, keep in mind that this involves users and not the investors. The success of investors is dependent directly on the beginning payment amount. Thus, the buffet pay is key to success of network effect.
Bet small amounts and take profits as soon as possible
With Facebook’s price you shouldn’t feel overconfident with the shares. Compare the positions of Google and Facebook. Google started with $25 billion and its value increased by 6 times. Facebook now will have initial value around $100 billion which means investors will have to wait much longer for the value to get double and much longer than that time to get to the Google’s position.