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Facebook: To buy or not to buy?

By Sheyna Steiner ·
Friday, May 11, 2012
Posted: 8 am ET

In just one week, investors will get the chance to own the social media phenomenon that is Facebook. The question is, should you?

A survey released on Thursday by The Motley Fool, an investing advice website and community, asked individual investors if they plan to buy shares of the ubiquitous website.

From the press release:

The survey found that investors with less than one year’s experience investing are roughly twice as likely to invest in Facebook as investors with more than 20 years’ experience. Four out of ten (39.5 percent) novice investors said they plan to buy Facebook shares versus just two out of ten (22.2 percent) investors with a couple decades of investing under their belt.

According to the survey, one-third of investors say they won't be buying Facebook stock. Their reasons include: all the hype surrounding the IPO; they think the company is overvalued, and the business model is too mysterious.

And some people just don't invest in IPOs.

That may be a good rule to follow: Investing in a newly public company can be more risky than buying those with a long history. Plus, it's a social media company, a brand-new industry.

Quite often, IPOs skyrocket in price right out of the gate: case in point, last May's LinkedIn debut. The IPO price was $45, and it closed that day at $94.25. Through the course of the year, the stock price dipped as low as $60 per share. It closed Thursday at $110.50.

The volatility of IPOs may be unexpected by novice investors, and critics have contended that the company is overvalued. On the other hand, it could be a great deal and go straight up and never look back.

A few lucky retail investors will actually be able to get in on the IPO through discount brokerage E-Trade, the website CNN Money reported earlier this week in the story, "How small investors can get in on the Facebook IPO."

To go that route, money will need to be deposited five days ahead of time, and there are a couple of other hurdles like suitability standards to be met. So get going if that's your plan.

After the IPO, anyone can buy shares and take on all the associated risks of buying an individual stock. Before buying, check out the Facebook S-1 filing, which includes the prospectus. It details the risks the company foresees, how they make money now and how Facebook's management expects to keep earning money in the future.

You can also watch the roadshow video and see the presentation used to woo institutional investors.

Will you be buying Facebook?

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May 17, 2012 at 4:58 pm

Does anybody remember DOT
COM? it!

May 17, 2012 at 4:24 pm

well,I would watch for awhile. If you can invest in it I would. Even though I no longer have a facebook due to someone changing my password, I see the money it does make.

Goron Martin
May 16, 2012 at 3:20 pm

See in todays news General Motors are dropping advertising on Facebook. Will others follow? What will this do to the bottom line

May 16, 2012 at 12:34 am

Social networking is addicting to those who want to feel a sense of belonging and also want to create or enhance their identity. Facebook offers a means to this end.

Facebook is learning how to create a revenue stream from their one billion users. This will come from development of interactive advertising. They just need to implement the changes they know they have to make.

I'm buying every share I can.

Mark Z., you wanna swap yachts for the weekend?

May 15, 2012 at 6:02 pm

I believe that future technology will take people from face book and put them in front of their tv,s. Move over George Jetson.

Sheyna Steiner
May 15, 2012 at 1:45 pm

It is difficult to rationally evaluate the value of something like Facebook. To me, it's a gamble, not because I dislike Facebook or distrust their valuation and business model but because no one really knows what it's worth or how it's going to do in the future.

I think the survey referenced in the article highlighted one of the more troubling aspects about big IPOs and that is investors making big bets when they can't afford it.

keith wren
May 15, 2012 at 12:46 pm

Apparently a different one than you are, LORI...

Dave McReynolds
May 15, 2012 at 9:29 am

I completely agree Keith. I don't have a Facebook account, but my wife does so I have had occasion to look at it. I don't see how it is really different from or the other social websites I've seen. I also believe it is way overvalued and a lack of any kind of business model alone would scare me off. Buy at your own risk. That what the stock market is about. In this case, I would wait and see.

May 15, 2012 at 9:27 am


keith wren
May 15, 2012 at 1:52 am

I think facebook is overvalued, simply because I think facebook is actually worthless. Business model? it is not a business by any stretch of imagination. I was on facebook for a while and saw how it was void of security, lost a computer, so I quit... Well, sort of quit. If totally avoiding it and never going back counts, I quit! I discovered that I actually could not quit facebook nor could I remove my private information from facebook. I could not even make changes to my information that would remove my personal risk of my personal information being in a place where anyone can easily access it. A large percentage of people that joined up with facebook are like me. They quit, but they are still counted on the books.

I have not been to facebook for a couple of years and people could not send me messages through my facebook account because I quit.

But... this weekend that changed. I got one message from a person through facebook that would not have contacted me if they could have. I got another one from my grandson through facebook that didn't contact me. I think facebook is trying to show ten times as many "active" members as they actually have... just a part of the big con to sell stock on a company that is not actually a company.

So... company overvalued... by a mile. Is that to say that people won't make money with the stock? People could juggle the stock for a few years with there being no company, and I suppose they will. As for facebook as an actual business... It has no business value.