As the secondary market halts trading in Facebook shares for three days (as of 1/25/12), everyone is expecting the release of the Facebook IPO announcement documents any time now. Then we can get a real idea of the inner workings of Facebook, how they make their money, some idea of their growth prospects, better handle on the risks, and we’ll maybe have a better idea of valuation. The question on everyone’s mind: is Facebook really a $100 billion dollar company, and does the idea of floating only (10) ten percent of your shares create a huge, unnatural demand! When the IPO frenzy hits (likely April or May 2012), and in the heat of the moment, will investors actually pay even more than $100B market cap valuation on the first day of trading?
Remember these aren’t just numbers… Disney (ticker symbol: DIS) and Caterpillar (ticker: CAT) are $70B market cap companies each. If you could write a check and buy all of Facebook for $100B, wouldn’t you rather buy all of either a company like Caterpillar or Disney, and save the rest of the money (~$30B) for a milkshake… [not-so-veiled Warren Buffett reference...]
Let’s do one more mind experiment… For $97.37B you could buy all the shares of BOTH FedEx Corp (ticker symbol: FDX) and Kraft Foods (ticker symbol: KFT), maker of Oreos, Nabisco, and Kraft Macaroni and Cheese, among other things. FedEx has a market cap (as of 1/27/12 – Google finance) of about $29.17B and Kraft has a market cap of $68.20B. Here’s the mind experiment… if you had $100 billion dollars, would you rather own both of these companies or all of Facebook? (Leave your thoughts in the comments if you’d like…)
And here’s a link to a recent article I wrote over at InfoBarrel about the upcoming Facebook IPO, and some things to learn from LinkedIn’s IPO last year.
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