Best thing since Google or the latest tech bubble?

By David Randall, Reuters

Friday, February 03, 2012

Depending on who you ask, Facebook is either the best company to go public since Google or the hallmark of another tech bubble.

But no matter the ultimate fate of the broad-reaching social network, it is clear that investors will be scrambling to pick up shares when they get the chance.

Facebook filed for a $5bn (€3.8bn) initial public offering on Wednesday. If all goes smoothly, the actual IPO will follow a few months later.

Facebook shares are likely to pop on the first day of trading. Investors won’t get the full benefit unless they are among the few privileged clients of underwriters who can buy at the offer price. Morgan Stanley is the lead among them.

Still, investors who want a stake in the dominant social media company will have options.

It is easier to buy funds that own stakes in Facebook than to hope an order for individual shares will be filled early on the IPO day.

A batch of funds from T Rowe Price will offer one chance, though muted, to benefit from the expected first day pop in the stock. The company revealed last year that it had purchased Facebook’s private shares and traded on private markets at an initial price of $25 per share.

The stake, now worth an estimated $408m, is spread across 19 funds.

Investors in each fund will profit from the IPO, though the fund’s overall performance still depends on other companies in each fund.

The T Rowe Price Media & Telecommunications Fund has the largest stake in Facebook, at about 1% of its total assets.

The $1.9bn fund, which has outperformed the Standard & Poor’s 500 by an annualised 9.9% over the last 10 years, charges 84 cents per $100 invested.

If investors can’t get shares of Facebook, they may want to consider those of its main underwriter.

Morgan Stanley is expected to lead the company’s IPO, giving it bragging rights that may translate into value for its shareholders.

The company "is doing this more for prestige than to make money", said Michael Wong, an analyst at Morningstar who covers the company.

"It will be a boost to their standings and any type of marketing they might want to do to web-based social media (and) technology companies."

Underwriting is a small part of the company’s overall revenue, Mr Wong said, accounting for only about 4% over the last two years.

A successful Facebook IPO could help investors "recognise the potential in Morgan Stanley and have confidence in the company again", he said.

Shares in Morgan Stanley jumped 4% on Wednesday to $19.39, on reports that it would lead the Facebook IPO. Even so, the company remains moderately priced.

It is trading at a price-to-earnings ratio of 15, compared with 13 for the broad Standard & Poor’s 500 index. And, despite a 28% jump over the last month, the company remains 16% below where it was trading six months ago.

Analysts polled by Reuters have an average price target of $22.40 for the company, a nearly 15.5% jump from its current share price.

This appeared in the printed version of the Irish Examiner Friday, February 03, 2012