Friday, May 18, 2012

All Eyes Are On Wall Street Today....

For $38 a Share, You Can Be Part Owner Of The Last Next Big Thing..

     After months of speculation, it's finally here.  Facebook is giving it's initial stock offering - and it keeps going up. It was first estimated to go at about $24 a share, but it's ended up at $38.  Keep in mind, for every $2 increase in share price, Mark Zuckerberg's net worth will rise approximately $1 Billion.  Over 414 million shares are up for grabs, so a lot of ordinary people are going to be millionaires overnight.  The big question is - should YOU be buying stock in Facebook.. Our money says probably not, unless you can get in and out fast.

    Here's our thought process... Companies that are private and eventually go public do so because they need capital.  That is, to expand in the marketplace, they need to be able to produce and market more.  For companies like GE, McDonalds and Apple, increasing market share means being able to expand the means of production - and that takes money.  Here is our question with Facebook's IPO: you already have 900 million subscribers in almost every country on Earth, nearly 1 in 6 worldwide.  Also, your service/product doesn't require much capital to expand... So, why do you need the big influx of cash?

     Nope, we have the feeling that Facebook is seeing the top of the curve coming, and they are getting ready to cash out a bit. Are we predicting that Facebook will soon be a thing of the past - a bubble?  Nope.  For many of us, it's become part of our everyday lives.  I wouldn't be able to have reunited or communicated with thousands of people that I do now.  Facebook is here to stay, but it's not for everyone, and where it used to double and triple it's members annually, it's down to 10-15% per year.  It's near it's peak... And when that happens, you cash out.

    Where the stock will go is anyone's guess.  The $38 per share price for a company that makes billions a year is actually cheap, so it will likely skyrocket quickly.  It's after the initial excitement, it's going to be like every other stock.  Also, there are going to be a lot of ordinary people at Facebook who are going to look at the price, figure out what their net worth suddenly is, and sell their shares off like madmen... Once the sellers equal the buyers, the price stops rising - and eventually, it drops.

    To give you an idea of how crazy the Facebook IPO is, here's a stat.  With the IPO, Facebook's net worth is now higher than General Motors and Ford.... COMBINED.   But there is nothing tangible to it, and unless they figure out how to branch out into more tangible things, the stock will drop.  Today's going to be very interesting.  We have experts predicting it will explode to $70 a share soon, other say it will not move at all.  We'll see....


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