Tags: Investors | Facebook | IPO | Price

Analysts Warn Investors to Beware of Facebook IPO Price Bubble

Thursday, 17 May 2012 01:07 PM

Investors should exercise caution getting in on the Facebook initial public offering, as early investors in the social network may sell a hefty amount of shares right when the company goes public for a quick buck, which could burn others early on, analysts say.

Goldman Sachs plans to sell 29 million shares, the Guardian reports, more than originally planned, while legendary Silicon Vally investor Peter Thiel, another early backer, plans to sell 17 million shares.

"People who invested early have done very, very well out of Facebook," says Sam Hamadeh, chief executive of PrivCo, a private company analyst, the Guardian adds.

Facebook’s price range for its initial public offering has been finalized, a person familiar with the matter, told CNBC, and won’t be re-filed with the Securities and Exchange Commission before Thursday afternoon’s pricing call.

While the company could still price above the expected range, SEC rules bar companies from pricing too far from what’s been disclosed to the public, meaning Facebook can’t price higher than the low $40s, CNBC reported.

Some investors have been queried by underwriters specifically about a potential price of $39, according to a person familiar with the deal told CNBC — a potential signal that bankers may be preparing to close the deal above the current range of $34 to $38.

The company is seen valued at $100 billion, which may be a bit frothy.

"You can still believe in social media without buying into Facebook at this price. This company has been priced for perfection and then some. It's going to be very difficult for them to live up to that," Hamadeh adds.

Other analysts note a bubble mentality may be boiling around the hype.

"This is much more a spectacle, a media event and a cultural moment than it is an IPO," GreenCrest Capital analyst Max Wolff tells Reuters.

"This is not a game of models and fundamentals at this point."

Facebook's share price could surge 30 percent on debut day, says Reena Aggarwal, a professor of business administration and finance at Georgetown University's McDonough School of Business in Washington, according to Reuters.

Retail investors might want to wait on the sidelines until the dust settles.

"The market will try to figure out the right price for the stock and it's going to open really high," Aggarwal says.

"There are lots of risks — the company is high growth but also high risk, and there is a lot of uncertainty, so retail investors have to be careful."

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Thursday, 17 May 2012 01:07 PM
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