Why Investing in the Facebook IPO Makes Sense: Should I Buy Facebook Stock in 2012, and at What Price?

Most anticipated stock IPO in years: Ticker symbol: FB

The hottest IPO (initial public offering) in years is set to take place in 2012 -- that of the social networking powerhouse Facebook, the second most popular website on the entire world wide web. Facebook's stock at the IPO might be initially overvalued, but there are a number of reasons why it could be a great long-term investment. Even if you don't frequent the site yourself (OK, maybe you do!), consider this -- Facebook has over 800 million active users, including growing numbers of a variety of mobile devices.

Should I Buy the Facebook Stock IPO?

As retail investors, we have to wonder if we are just 'sheep' being led astray by the greedy financial/investment industry. Is the Facebook IPO just a situation where the early investors and insiders want to cash out now and make their fortunes, or is there real value in the company going forward? How does Facebook make money -- where do their revenues come from, and how does that grow going forward without alienating their users? Will Facebook users who have posted hundreds -- sometimes thousands -- of photos, posts, comments, links, notes, etc. -- will they ever leave and move their content elsewhere? Does Facebook, founded in 2004 by Mark Zuckerberg and others in a Harvard dorm, have the edge of being one of the earliest and the biggest? Could any social network ever replace what they have built? These are all valid questions for investors... could other companies quickly arrive in this social media space giving Facebook some serious competition?

If you look at the recent IPOs of Groupon (ticker symbol: GRPN), LinkedIN (ticker symbol: LNKD), Pandora (ticker symbol: P), and Zynga (ticker symbol: ZNGA) -- you might realize that they haven't fared very well. Early buyers and investors would have been better off to wait to buy these companies on the pullbacks that came after the IPO. But there is another way to deal with this as news shares start publically trading. If Facebook's IPO price is high and early investors want in - they can easily buy some shares immediately -- maybe half of their intended position -- and then wait 2-6 months and buy the rest. If the stock goes down they will be able to add to their holdings at a much better price and dollar-cost-average (DCA) their Facebook investment. If Facebook goes higher, their initial shares will show a paper gain, and they can just add more on the way up - if they stock still seems fairly valued.

There are a number of reasons why a private company like Facebook would go public with an IPO (initial public offering of stock). The main reason for Facebook might just be that they have to -- specifically the SEC rules governing the disclosures after the number of shareholders crosses 500. But investors must consider all the other reasons... Some online have said that this entire IPO maybe a "trap" for retail investors. But if Facebook goes public soon, and they have a real infusion of cash (~perhaps upwards of $10B), consider what strategic initiatives that might make with that money. Is that worth a Facebook investment?

How Can I Get Exposure to Facebook Stock Now?

When investors buy one stock for it's financial exposure to another it is referred to as a "proxy". Buying other companies like Microsoft (ticker symbol: MSFT), Facebook's number one banner advertiser and early investor, or recently public social media game developer Zynga (ticker symbol: ZNGA) --which gets most of its revenue from Facebook -- are two simple ways to tap into the Facebook revenue stream. It's also possible to buy certain T. Rowe Price (ticker symbol: TROW) mutual funds to get exposure to Facebook, or through investment bank Goldman Sachs Group, Inc. (ticker symbol: GS), which has been offering private shares of Facebook stock to some of its elite clients.

CONCLUSION

To me, Facebook looks interesting, and because it's such a household name, maybe its IPO will have the trajectory of MasterCard (ticker symbol: MA) or Visa (ticker symbol: V), rather than some of these largely unknown companies that have come to market. There are other conservative ways to approach an investment in Facebook after they launch options on the stock, but that topic is for another article. As I continue to do my research into the possibility of buying the Facebook IPO, I will remind you that you must do your own research and consult with your own financial advisors before you commit any risk capital to any investment.

Comments 4 comments

sabrani44 profile image

sabrani44 4 years ago

Great hub! Very informative, and a good read.


CapstoneTrends profile image

CapstoneTrends 4 years ago from Outside Boston, Massachusetts, USA Author

Thanks sabrani44!


russ 4 years ago

I may myself


stocklegends 4 years ago

Epic Fail

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