(By Rich Bieglmeier) The highly hyped and anticipated Facebook (FB) IPO is ready to hit the market. With more than 900 million monthly Facebook users and hot IPO chasing money managers, there will be plenty of demand for shares.
Unfortunately, most people with a Facebook profile will be shut out from getting IPO stock. You might be connected within your network, but not connected with the right people at the underwriters.
The only opportunity for most to participate will be after the stock opens for trading, or in the after-market as it's called in the biz. At the moment, there is a big debate amongst "gurus" as to whether buying in the after-market will be profitable for non-IPO investors.
The tentative pricing is between $28 and $35. Our estimations are that there is no chance of FB trading anywhere near its IPO price after it opens. It's anybody guess what the first print will be. To have a sense of what to expect, iStock took a look back at the opening premiums of all Internet Content Provider IPOs in the last year.
Of the 10 that started trading since May 4, 2011, the average opening premium ((opening price – IPO price)/ IPO price) has been 34%. Using just the hot IPOs, which iStock believes Facebook is sure to be, the average premium is 71%.
If FB is priced at $35, history says to expect the first print to be between $47 and $60. However, at the close of the first trading day, shares trimmed an average of 5.73% from their opening bids, while the hot ones lost slightly more than 6%.
We think the most apples to apples comparison is LinkedIn Corporation (LNKD). It was priced at $45, opened up 84% at $83, tacked on another 13.5%, and closed at $94.25. Using LNKD as our approximate guide, Facebook could start trading at $64.40 and close near $73.09. If history rhymes, you better make sure you have your tickets lined up before the bell.
So, iStock has day one all mapped out. Clearly, it will be a day of emotions and not valuations. Most likely, people will want to own the stock and won't care what price they pay, sort of like scalping a ticket to see your favorite team in the Super Bowl (did it twice and it's worth every penny).
Using our projected price range for FB's first official closing price of $44.30 (average Internet Content Provider IPO close premium) to the LinkedIn comparison of $73.09, iStock calculated a couple of common pricing metrics.
The Facebook prospectus says the social media site earned 43 cents per diluted share for the year ending December 31, 2011. That would put the opening trailing P/E between 103 and 170. Compared to LinkedIn's trailing P/E of 774, it looks laughably reasonable.
But ah, Facebook's earnings have dipped from 11 cents for the quarter ended March 2011, to 9 cents for the March 2012 quarter.