Should you buy into Facebook?
The chase by Marty Cej: Facebook is set to begin trading on the Nasdaq today after the social network last night sold 421.2 million shares at $38 US each, raising $16 billion and giving the company an initial market value of $104.2 billion and marking the biggest U.S. initial public offering ever. The stock is inarguably expensive at 107 times trailing 12-month earnings and 26 times trailing revenue. On a price-to-revenue basis, Facebook will be more than twice as expensive as the most expensive stock on the S&P 500. Among the questions many investors are asking today is how do I get some and do I want some? Some lucky individuals will become billionaires after the first trade, many more will become millionaires and the banks involved in the IPO will reap tens of millions of dollars in fees. But for our viewers, the questions will be "do I want some," "how do I get some" and "what am I willing to pay for some." We need to help them answer those questions.
How does one value a phenomenon such as Facebook? What is Facebook? Is it the technological expression and monetization of Plato's Allegory of the Cave, where the shadows projected on the wall are Facebook profiles and created by design rather than true form? And once freed from the cave to witness reality rather than a carefully crafted facsimile, is the philosopher doomed to disappointment "Ummm, hi. You, uh, look different than your Facebook pictures. No, no, in a, umm, good way. Ummm…" It's a tool for communicating with old friends, finding new friends, creating alternate realities and advertising. Oh, the advertising potential! Want to find out what your old boyfriend from college is doing now? Change your relationship status to "complicated" from "married" for a few minutes (Whoops!) and see what happens. Everyone wants a piece of Facebook, analysts say, but once you get a piece of it, what do you really have? A company with sales growth poised to slow for a third straight year and advertising sales that have so far failed to keep up with the addition of new users, for starters. There is much to talk about with Facebook today, not least of it is a comprehensive conversation about what Facebook is. Calling it a "social network" or an "internet stock" does our audience a disservice. Let's take it up a notch.
Facebook comes to market as the Dow Jones Industrial Average edges closer and closer to erasing all of its gains for 2012, the Nasdaq sees its early-year rally cut in half and the TSX down 5 percent so far this year. European stocks are down more than 7 percent so far this year, oil has dropped more than 15 percent from the end of February and the price of gold is mired in a technical bear market. For the vast majority of our audience, who won't catch a whiff of Facebook shares on its first trading day, the most important story of the day is their money and what they should do with it.
TD Bank yesterday asked "Will Europe force Bernanke's hand?" Goldman Sachs responded weeks earlier by saying, yes, the U.S. Federal Reserve will implement more quantitative easing at its June meeting. TD points out that the gap lower in Treasury yields in recent days indicates the market is pricing in a high probability of QE3. The minutes from the last Fed meeting "noted several members indicated that additional monetary policy easing could be necessary 'if the economic recovery lost momentum or the downside risks to the forecast became great enough.'…That is, the Fed may be willing to take further action to insulate the economy from the risks from Europe if the probability of a disorderly outcome increases sufficiently." We'll speak with the authors of the report at 10:00 am Eastern.
A disorderly outcome? In Europe? Pfft! How likely is that? Oh, wait. Reuters reported a few minutes ago the European Commission and the European Central Bank are working on scenarios in case Greece has to leave the euro zone. Reuters cited comments from EU trade commissioner Karel De Gucht to Belgium's Dutch-language newspaper De Standaard.
But wait! Newswire service MNI reported just seconds ago that a spokesman for the European Commission has "completely denied" De Gucht's comments that the EC is working on contingency plans. Sounds like someone is going to receive a stern lecture in a guttural language later today.
Facebook? Check. Europe? Check. China? Almost forgot! Bloomberg reports China's home prices fell in a record number of cities last month and car dealers posted inventory levels that foreshadowed deeper price cuts, adding to signs of slowing growth in the world's second-largest economy.
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