Investors Dislike Facebook Fluff

recent financial news is dominated by the initial public offering on Facebook. Morgan Stanley signed the initial offer last week, 400 million shares at a price of $ 38 per share. It was one of the most publicized IPO's in history. At $ 38 per share, it implicitly created a market capitalization of $ 104b for Facebook.

This level of evaluation is about 107 times earnings. For comparison, Apple's P / E around 13, while the S & P 500 Index is valued at around 15 times earnings. This means that earnings should grow dramatically in the near future, in order for its current price be supported by estimates that regresses toward the market average.

Day 1 Trade tells the whole story

There are two significant events on the first day of trading is said that the whole story of a Facebook IPO. The first is that trading has been delayed due to technical glitch, and the other is that Morgan Stanley has written a large amount of buy orders at $ 38 before the end of trading to avoid a net loss in price when the market closed. What is ultimately met the people who bought the first day is exactly zero money, and I love to just achieved a major purchase commitments by the companies who signed the offering.

Facebook is the future business model

Simple arithmetic dictates that Facebook profits should grow by a factor of 8.2 in order to reach the P / E ratio is equal to that of Apple, which is roughly in line with the market average. Thus, Facebook must find a way to generate much higher profits than they are today, if you want to avoid the collapse of the wholesale price of its shares. Currently, the only way to earn Facebook's advertising revenue. Many large companies have commented that Facebook advertising is not very efficient, and GM has already announced that it will no longer advertise on Facebook.

greatest wealth that Facebook has a massive treasure of user data. It is not difficult to understand that they will have to sell this information in some way or form in order to raise revenue sufficient for their stock price to be justified by a rational evaluation of the ratio. This means that the company will have to start aggressively attacking the privacy of its members fairly quickly if they want to have any hope of fulfilling their earnings expectations.

Smart Money is already out

The most interesting story is emerging from the first day of trading for Facebook, which is not purchased, but that is sold. Most people who sell shares of the early investors and insiders. Many people and companies who sold part of its stake in the initial offering period are very sophisticated, and often called "Smart Money" on Wall Street. Therefore, one must wonder if they are smart to buy stocks when they are some of the smartest companies in the world sells as quickly as I can. Some of the key insiders and "Smart Money" transactions are as follows:

• Accel Partners: 56 million shares (28% of total)
• DST Global: 53 million shares (40% of total)
• Goldman Sachs: 33 million shares (50% of total shares)
• Mark Zuckerberg: 32 million shares (6% of total shares)
• Tiger Global Management: 27 million shares (50% of total shares)
• Mail.ru Group: 23 million shares (40% of total)

These six sources account for more than half of 400 million shares that were initially sold to the public. What it proclaims in big, loud, bright letters that the smart money inside and have already started to dump their shares in Facebook Facebooku.IPO unique shows that all investors should be careful ... a lot of hype, lack of foundation, and a high level of sales by insiders. Ultimately, people who are likely to be penalized in this situation is the people who read Zuckerberg's Time magazine profile and realized that Facebook would be a great stock to own. These are people who will continue to be fleeced by the smart money and Insiders in the foreseeable future.

These six sources account for more than half of 400 million shares that were initially sold to the public. What it proclaims in big, loud, bright letters that the smart money inside and have already started to dump their shares in Facebook Facebooku.IPO unique shows that all investors should be careful ... a lot of hype, lack of foundation, and a high level of sales by insiders. Ultimately, people who are likely to be penalized in this situation is the people who read Zuckerberg's Time magazine profile and realized that Facebook would be a great stock to own. These are people who will continue to be fleeced by the smart money and Insiders in the foreseeable future.

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