Call me crazy, call me a “sucker,” but don’t call me too late for the Facebook initial public offering (IPO).
Full disclosure: I’m one of the half billion daily active Facebook users. I was excited when I heard that Facebook Inc. was finally setting an estimated price range (of $28 to $35 a share) for the IPO on its stock. This is the most anticipated stock offering in years. I want a piece of it — even if it’s only a single share.
But, as many people know, IPOs are almost always the realm of high-volume, high-roller institutional investors. The folks who walk away with money in the deal are the big investment banks that underwrite the deal and the company reaping the proceeds of the stock sales.
Everyday folks — mom and pop investors like me — rarely get a chance to buy stock at those low initial offering prices.
For the 100 or so people on the planet who don’t know, Facebook is an Internet juggernaut, but it sits on the top of a continually shifting social media ladder. Any little wind could send it toppling over and into the has-been basket with MySpace.com and AOL.com. They are so five years ago.
There are 901 million monthly active Facebook users. Some 300 million photos are uploaded onto the site each day. During the month of March 2012, there were 526 million daily active users — not bad for a company founded eight years ago by an anti-social Harvard student. (Watch the movie based on founder Mark Zuckerberg — “The Social Network” — to see Hollywood’s version of how it came together.)
Letting the little guys and girls in on the deal
In what some are calling a public relations move and others a sucker bet, Facebook is setting aside a small chunk of its IPO for “retail investors.” In theory, those are smaller-scale investors who buy and sell stock using two of the more popular low-cost trading portals: eTrade and TD Ameritrade.
Yesterday, I got an email from eTrade — (I’ve had a little stock account with them for years) — inviting me to get in on the Facebook IPO.
I got excited — then I read the fine print. eTrade is offering to let me make a “conditional offering” to bid on the Facebook stock it receives in its retail allotment. You have to buy a minimum of 50 shares and placing this conditional bid by no means guarantees you’ll be able to buy. The winning purchasers will be selected in a “subjective” process by eTrade taking into consideration the “asset level of your account,” the trading history and tenure of the account and the available cash in the account.
Well, that probably killed my chances. My account is still small potatoes compared to others who will be seeking a chance to buy. Other brokers are setting the bar even higher for the so-called “small” investors, requiring accounts with at least $500,000, reports CNNMoney.
Hmmm … Who do I know at eTrade who can get me in on this? Absolutely no one. I submitted a bid anyway, just to see what kind of rejection letter I might get:
I imagined it would go something like this:
“Dear Ms. Prater: You didn’t really think they meant small investors, did you? Your daily devotion to Facebook will afford you absolutely no standing to buy into this game. Besides, haven’t you read the 212-page prospectus? Buying Facebook is a gamble best left to the experts and their algorithms that tell them the exact time to dump the stock to maximize profits. You and your kind will probably hang on to it much longer than you should in a pathetic, emotional way that screams ‘amateur!’ Best take your money and continue to play in the minor leagues. Sincerely, Two percenters screening committee.”
My paltry portfolio is nothing to brag about. I have followed the strategy of “buy what you know” and have had successes and failures. Since I don’t invest on a large scale, neither the ups nor downs have fazed me. The one exception to that was Google. I was giddy about that stock because I bought it in 2008 when the market was tanking and sold it in 2011 for a tidy profit. I followed the stock price daily as it rose and fell but then rose again. I had a single share. (Hey, I said I was small potatoes.)
A roller coaster ride ahead
I want Facebook now so I can follow it with the same passion — even though analysts point out that its revenues are leveling off, even though there are questions about its ability to grow future earnings to push stock prices higher, and even though a newcomer on the social media scene could knock it off its pedestal. What difference is there between buying Facebook stock and going to blackjack or poker tables in Las Vegas? It’s all a gamble to me.
Forbes.com blogger Matt Schifrin calls me and other retail customers who want to buy Facebook stock “suckers” in his recent blog. But he notes that letting retail stock purchasers in on the Facebook IPO may help stabilize the stock.
Says Schifrin: “If ever there were a company where millions of people are poised to become emotionally attached it is Facebook. Most of us love the website and consider our Facebook pages our personal real estate/ homestead in cyberspace. We understandably want the company to succeed. If Facebook disappeared tomorrow it would create a big hole in many people’s lives. I think my teenager would be walking around like zombie wondering what to do with his time.”
Risky business? Sure
Of course, there are risks to buying any kind of stock. eTrade certainly points them out on its website.
Facebook is upfront about its biggest vulnerability: a mass user exodus. “If we fail to retain existing users or add new users, or if our users decrease their level of engagement with Facebook, our revenue, financial results, and business may be significantly harmed,” the company states in the IPO prospectus.
No kidding. There isn’t a day that goes by that someone isn’t denouncing the evils of Facebook, deactivating their accounts or swearing to never sign up for it. In the social media world, there are people who love and hate Facebook — sometimes at the same time.
Defection to another up-and-coming social site could put a halt to the steady rise of the Facebook empire. Remember MySpace and AOL? The new Facebook could be just around the corner. It acknowledges the threat is very real: “Our business is highly competitive, and competition presents an ongoing threat to the success of our business.”
A massive security breach could also bring the site to its knees. With so much personal information stored in the Facebook databases, there’s an enticing challenge to hacking in.
Virtual credits means real dollars
Just as there are risks, there are potential opportunities as well for the social giant. Facebook’s virtual currency is growing in popularity. Facebook credits were one of the up-and-coming new age payment methods cited by Payments Views blogger Russ Jones this week.
If you’re playing Zynga’s FarmVille (a hugely popular and addictive Facebook game that allows you to buy virtual tractors and other items to help tend your crops) or any of the Facebook-based games, you know how often you’re bombarded with “opportunities” to buy more credits or chips to continue playing.
Purchasers use their credit cards or other payment methods to buy digital good
s from platform (game) developers, such as Zynga. In the case of Texas Hold’em poker, another Zynga game on Facebook, they give away a certain amount of chips for free (I think it’s to get you hooked) then the up-sale pitch comes shortly afterward.
According to the prospectus, “In 2011, our platform developers received more than $1.4 billion from transactions enabled by our Payments infrastructure.” Facebook gets a cut of every one of those sales. In 2011, Zynga game sales and advertising on its game pages accounted for 12 percent of Facebook’s revenues, according to the company’s S-1 filing with the U.S. Securities and Exchange Commission. Revenues from payments and fees totaled $557 million in 2011.
Writes Jones: “Facebook also recently launched a limited test of ‘Facebook Credits for Websites’ which we presume is the first step toward moving credits beyond the Facebook platform out into the open market. And don’t even get us started on the number of potential users.”
So, I think I’ve done my due diligence. I didn’t get through the entire 212 pages of the prospectus, but I got through a lot of it. I still want in to this “sucker” bet.
Surely, someone will think my small potatoes are worth something. Hello, is anyone from eTrade out there listening? If I get in to the IPO, I’ll blog about how my roller coaster ride goes.
UPDATE: I was able to get 50 IPO shares of Facebook at $38 a share, but the stock did not fare well on its first day of public trading. The roller coaster ride begins.
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