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May 11, 2021

Facebook IPO somehow already oversubscribed: report

This March, we detailed the wild and tumultuous ride of Apple stock, which would not stop hiking in value.

The moral was simple: at every turn over the past six years or so, the Apple stock price on any given day was a fool’s bet. The thinking went, at intervals over its stock chart, that there’d be no way shares could rise in value any more, and buying at such an inflated rate would be akin to lighting cash on fire.

Of course, Apple stock kept going up, jumping more than 1,000 per cent between 2006 and 2012, so really had you bought ownership in the company, even at its once-thought-of inflated rate, you’d be rich today.

Now, the same conundrum exists with Facebook, which is set to go public later this month. Most money managers hate the company as an investment, citing its bloated variables, but if that's the case how has the social network’s pending IPO already become oversubscribed?

Facebook is seeking to raise some $10.6 billion at its initial public offering May 18, selling more than 337 million shares at $28-$35 a piece. Some analysts have wondered if that share price couldn’t spike to $75 on trading day.

Somehow, though, despite Facebook’s earnings woes, a source familiar with the share listing says the social network’s IPO is already oversubscribed, meaning of course there’s demand for more shares than Facebook has available.

Tech investing, as we saw with the spectacular dot-com bubble burst, is as finicky as it gets. It’s an industry that Kevin O’Leary likes to say is powered by the tastes of “16-year-old girls.”

Which is why investors scorn Facebook. The site is hot now, no doubt – 900 million-plus users strong.

But Facebook has trouble earning, scraping by largely on advertising and gaming revenue. Some investors put the site’s price-to-earning ratio at a multiple of 80-85. Numbers as high as 99 have been thrown around.

That’s a huge multiple (P/E ratios are a measure of the price paid for a share relative to the annual profit earned by the company) so it’s with that buyers should be appropriately spooked at buying into Facebook when it does not earn like other companies with similar market caps.

Until Facebook can prove it knows how to monetize the near-billion users it has, the feeling of ownership in the social network is sure to prove uneasy.

By Jason Buckland, MSN Money



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...