Experts weigh in on Facebook stock IPO

Facebook’s much-hyped initial public offering promises to be an exciting spectacle when the social media giant goes public this spring. But should you update your status to “shareholder”? 

The potential rewards from this $5 billion IPO are big, but so are the risks.

Some numbers that came out in Facebook’s filing late Wednesday were impressive: a $1 billion profit in 2011, $3.7 billion in revenue, 845 million users. What’s still unknown: the initial stock price that connected buyers will be able to get, not to mention what shares will cost by the time average investors get a chance to buy shares. 

A roundup of opinions from fund managers and other investment professionals on just how good an investment Facebook might be:

 

“The key question is what will the (stock’s) valuation be. We’ll find out in the road show. If they’re making $1 billion a year, I’m not excited about paying 100 times earnings. This is an Internet company. It’s not Apple selling 100 million iPhones.” 

— Barry Ritholtz, CEO of research firm FusionIQ, New York.

 

“Facebook can be a great company, but that doesn’t mean its stock won’t underperform. Trying to pick out successful IPOs — that’s stock-picking on steroids. It’s definitely a gamble, and Main Street investors should stay as far away as possible.”

— Mark Matson, CEO of Mason, Ohio-based money management firm Matson Money.

 

“They’re nicely profitable at a few billion in revenue. It probably means they will be obscenely profitable once they get to $10 and $20 billion.” 

— Kevin Landis, chief investment officer of Firsthand Capital Management, San Jose, Calif., whose funds have a substantial Facebook stake.

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“Facebook is competing with some extremely deep-pocketed companies like Google and has a relatively inexperienced management team. It’s a high-risk, speculative investment that I’m afraid Mom and Pop are going to put significant sums into. There are going to be thousands of advisers who lose a lot of money on Facebook.” 

— Andrew Stoltmann, Chicago-based securities lawyer and investor advocate.

 

“The real money in IPOs is made by the people who are buying stock privately, then selling it in the market and pocketing the difference. The average investor can’t get access to that.  You need luck on your side. You could be left holding the bag after you buy high.” 

— Rob Russell, president of Dayton, Ohio-based money management firm Russell & Company.

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