What to expect during Friday's Facebook frenzy
There will be some interesting activity May 18. Find out what could happen during the IPO.
By Socrates Alvarez
As many people have probably noticed, there has been significant buzz and speculation flooding the blogs and news sites over this upcoming Friday's release of Facebook's IPO on the Nasdaq. Many financial pundits predict catastrophe and a second dotcom bubble bursting in the market, and expect Facebook's performance to mirror the struggles that have crippled recent tech companies -- like Groupon (GRPN) and Netflix (NFLX) -- that entered the market over the past 12 months. A few, on the other hand, see Mark Zuckerberg's darling of the Internet as a stock that could pop like Google (GOOG) did.
Whether you are avoiding the IPO altogether, aiming to try and buy a few shares at the retail level or simply sitting on the sidelines observing Friday as a historic day for the tech industry (as the IPO will be the largest one released in history), May 18 will unmistakably see some interesting activity, with the following likely to occur.
Unless you're rubbing shoulders with major underwriters and have bought pre-IPO stock, or have a few million lying around in your investment account waiting to be invested, it will be incredibly difficult to purchase shares of Facebook as a regular investor when it immediately hits the market -- especially at $28 to $35 per share.
When LinkedIn (LNKD) released its offering to the public, it saw market volume within the millions, and after its shares were released at $45 a pop, the stock's price surged to above $100, before settling on $94 at close. Investors bidding for the stock on that day, hoping to grab the initial offering price, saw ask prices swiftly move north as the day progressed. Undoubtedly, an IPO as prolific as Facebook will see similar movement.
Due to its household name value, Facebook will also likely attract inexperienced investors who want to get in on the action at the discount brokerage level. Earlier this month, E-trade was added as the 33rd underwriter for the IPO, allowing clients with smaller assets, many of whom may be less-sophisticated investors, to hop on the bandwagon. It also gives day traders the ability to dive into the fray, causing significant amounts of noise during the first trading day. Traditionally, noise traders are often associated with price escalations leading to a bubble, forcing the price of a stock to deviate beyond its fundamental value. For a company with a name as ubiquitous as Facebook, it goes without saying that there will probably be a few noise traders in the mix.
There will be numerous players vying for position to cut a slice out of the social media giant, with funds and high net-worth individuals the most visible contenders for the company. The hype behind the IPO will likely cause significant movement in the stock's volume of outstanding shares, as Facebook insiders cash in their shares in the company and release them to the public. Among the individuals who will be scooping them up include Apple co-founder Steve Wozniak, who stated during an interview with Bloomberg this past weekend that he plans on buying shares of the company, regardless of price. Expect to see a record-breaking volume of shares exchanging hands later this week.
New millionaires and billionaires
Insiders at Facebook include not only Zuckerberg and the venture capitalists who helped start up the company, but celebrities, employees and contract workers who helped the growth of the site. Graffiti artist David Choe, who was commissioned to paint the murals adorned in Facebook's Palo Alto offices, chose stock over a cash fee for his work. When the company hits the markets, the stock compensation Choe accepted will net him approximately $200 million. Moreover, U2 front man Bono possesses a stake in Facebook that, when the IPO hits the market, will be worth up to $1.5 billion -- more than he ever earned during his musical career.
The bottom line
Valued at nearly $100 billion, Facebook's IPO is tentatively worth close to half the market cap of Wal-Mart (WMT) and more than the capitalization of Disney (DIS). Whether or not Facebook will live up to its hype, the fact remains that this week will be a tremendous event in the history of the IPO market.
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