On Facebook IPO, wait for the number of shares

The networking giant is the real deal, but its valuation is a moving target. Don't make a move just yet.

By Jim Cramer Jan 31, 2012 12:48PM

So now we know where all of that display ad money went to: Facebook.

 

With a 28% share, Facebook has put quite a distance between itself and Yahoo (YHOO), Microsoft (MSFT) and Google (GOOG) in display advertising. Yahoo is second, with an 11% share, and the others are left in the low-single-digit dust, which tells you how strong the Facebook story is. (Microsoft owns and publishes Top Stocks, and MSN Money site.)

 

Plus, the company has doubled its revenue in the past year. And the revenue is in the billions of dollars.


This company is the real deal, and it will be very difficult to figure out how much it is worth, simply because it is such a moving target. The possibilities for monetizing 800 million Facebook users, which themselves are a moving target, are just beginning. But what matters is that Facebook is mainstream and popular with even the most conservative and stodgy of advertisers.

 

Don't believe it? Facebook was actually called out on the Procter & Gamble (PG) earnings call as a cheap way to advertise to the right demographic. Remember, in a world where the television audience is decreasing, the magazine and newspaper audiences seem to diminish by the day, and other Web companies have either lost their way or not emphasized display ads, Facebook is game, set and match for these advertisers.

 

It wouldn't surprise me if Facebook actually drove all ad rates down as television and print have to deal with the efficacy and viral nature of Web ads. Remember, Facebook users magnify the ad numbers as more and more people are friended.

 

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Should you be in on the deal? My gut reaction is yes, but only if Facebook's management team and the book runners from the investment banks aren't greedy.

 

Remember how deals work. If you want to engineer a pop, the bankers simply have to limit the number of shares they offer. It is possible to price Facebook at $50 billion by offering, say, one-tenth of the shares outstanding, and then have it trade up to, say, $100 billion by forcing big fund managers to go into the aftermarket to give themselves enough stock to make a difference to their portfolios.

 

In that case, of course, you want in on the deal, because you might get a double. But the way the deal works to get from, say, $50 billion to $100 billion is to cut back everyone so shares will be very tough to obtain. That's what happened with LinkedIn (LNKD).


Of course, Facebook could do it the other way and price the deal at its fullest, betting that retail investors will go nuts, a la 1999 to 2000, and take it to a level that's pretty crazed. That's what happened with Groupon (GRPN) at its best -- in that you still got a pop -- or Zynga (ZNGA), which shows mispricing at its worst.

 

Either way, there's no way to determine which route the bankers will take until we get closer to the deal. It's the number of shares, not the valuation, that will control it. Don't make a move until we hear the number. That's what will let you know whether to put in, whether to hold, or whether to flip the Facebook shares.

 


Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.

10Comments
Jan 31, 2012 2:03PM
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buy facebook ...no sell facebook..........the shyster is always right

BEWARE THE SHYSTER

Jan 31, 2012 3:57PM
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this guy is much more serious than a joke.........he is costing people money by

using the media such as this site to pump and dump stock

TELL MSN TO BAN HIM

Jan 31, 2012 2:42PM
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Where's Disney stock heading? Last week Cramer said there was nothing to act as a catalyst to the shares but it was a stock for the generations. What does that mean? And why are Disney hotel prices doubling and cruise prices quadrupling in 2013? Cramer please analyze that development. Facebook is for married fat chicks who want to cheat on their husbands by spending time talking to other fat chicks and divorced males because they don't have sex anymore.  
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Notice that Jim's columns are appearing later in the day on this site. Not that today's column is time sensitive but it allows him to continue waffling and also get a feel for what is happening. "Go with the flow" Cramer.
Jan 31, 2012 3:12PM
Jan 31, 2012 3:40PM
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go to the very bottom of this site....click feedback and tell MSN to bar this criminal

pump and dump preacher

Jan 31, 2012 3:35PM
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I usually stay away from IPO's.  I did buy in on the Visa IPO and made some money within a week and sold, but normally that is not my style.  I only went with the Visa IPO because I have two Visa cards and figured, oh well, one hand washes the other.

 

 

Jan 31, 2012 7:27PM
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    This thing is gonna blow up like a candy bomb at the world fair! everyone is gonna get greedy with this one, and probably more than once.
     soc 1............................ I think Carmer has a  good grasp on it and always tells it like it is.
Jan 31, 2012 6:00PM
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first time i heard " not if they're greedy"
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