Facebook’s IPO is causing a frenzy among investors eager to get a piece of the social networking website.
Whether it’s a good idea to jump in when FB debuts Friday on the Nasdaq is another story.
"Investors shouldn’t invest in any one stock unless they can afford to lose it all," said Jay Ritter, professor of finance at the University of Florida. "With a growth company like Facebook, there is a lot of upside potential, but there is also substantial downside risk if the company fails to meet expectations."
Buying shares during the initial public offering process is particularly challenging for small investors. Shares of an IPO are primarily distributed to the institutional investors, mutual funds and hedge funds which are the biggest clients of the major Wall Street banks that are underwriting the offering.
While Facebook is making an effort to make some of its hotly sought after shares accessible to all, they’ll still be hard to come by.
The demand is so strong that Facebook raised the target price range for its stock to between $34 and $38 per share, from the $28 to $35 range it set earlier this month. And early Wednesday, Facebook said it will sell 25% more of its shares.
Sterne Agee analyst Arvind Bhatia says there’s a buying opportunity for investors if they’re able to snag Facebook shares within the IPO offering range. But to those who have to wait until Facebook shares begin trading on the open market on Friday, Bhatia urges caution.
Facebook IPO is no safe haven
Given all the hype, experts anticipate that the company will have a strong debut.
For example, when Groupon () went public last November, the stock opened at $28, 40% above its IPO price, and surged as much as 56% on its first day of trading when it hit an all-time high of $31.14.
If investors had purchased shares of Groupon during their first day of trading, they’ve likely had a tough time booking decent returns. The stock has been trading below its IPO price for months, and is currently 40% below its IPO price.
Similarly, Zynga () shares surged as much as 15% during their market debut in December, but ended up closing that day 5% below the IPO price. Shares are now trading more than 14% below the IPO price.
"I would say it’s better for individual investors to generally avoid playing the IPO game until a few quarters after the company goes public so that its stock is a bit more established," said Bhatia. "Or they need to be able to stomach a lot of volatility."
Seniors clamoring to invest in Facebook IPO
If you’re daring enough to try buying Facebook shares on opening day, there are a few ways to protect yourself.
For example, by using a so-called limit order, you can set a ceiling for the purchase price that you’ll be comfortable paying, said Tom Schrader, managing director at Stifel Nicolaus.
If the stock stays above your limit, or if other limit orders snatch up all the shares available at the limit price, the trade won’t be executed. You can also specify whether you want to consider buying the stock with the limit order just at the open or throughout the trading day.
On the flip side, if you nab some shares and want to sell them at a certain price, you can use a limit order that sets a floor on the sales price that you’re willing to accept, helping you prevent selling your shares for less than you want.
The hard part is determining what’s a fair price for a share of Facebook. Morningstar’s analyst Rick Summer pegs fair value for the stock at $32.
"The enthusiasm for Facebook is not misplaced, but the market may be underestimating near-term challenges for the company," he said.
How small investors can get in on Facebook IPO
In particular, Summer noted that while Facebook will be able to translate its immense user base - over 900 million a month — into massive growth over the long run, "the ability to further monetize current users represents a significant hurdle which must be overcome."
Concerns are particularly high about the company’s ability to monetize the growing number of users that are accessing Facebook on mobile devices.
"We see mobile monetization as a significant long-term growth opportunity for Facebook, but with some initial challenges," said Sterne Agee’s Bhatia, whose price target for Facebook’s stock over the next 12 months is $45. "For example, it is not yet clear if most of the mobile advertising growth will be incremental or will cannibalize online advertising."
Advertising accounted for 85% of Facebook’s total 2011 revenue, but to-date, most of Facebook’s ads have been display ads: banners, images and other graphics, ignoring mobile devices.
Another worry among analysts is Facebook CEO Mark Zuckerberg’s tight grip on the company. After the IPO, the young billionaire will control about 57% of the voting power.
Morningstar’s Summer notes that Facebook’s recent purchase of Instagram for $1 billion reportedly happened with little involvement from the company’s board of directors.
"If Mr. Zuckerberg loses discipline in allocating the company’s capital, there can be no guarantee that any such mechanism would prevent the company from destroying shareholder value," he said.
Following an IPO-induced pop, Summer said the focus on these looming challenges may lead to stock price declines and "ultimately create a very interesting buying opportunity for the shares at a later date."
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The number of people seeking U.S. unemployment benefits suggests hiring is slowing.
The Labor Department said Thursday that weekly applications dipped last week by 2,000 to a seasonally adjusted 386,000. But that was only after the department revised up the previous week’s data to show 8,000 more people applied for benefits than first estimated.
The four-week average, a less volatile measure, rose last week by 5,500, to 374,750. That’s the highest level in three months, although it is still 9 percent lower than the level from September.
Applications have started to tick up in recent weeks after months of steady declines. When applications fall below 375,000, it generally suggests hiring will be strong enough to lower the unemployment rate.
Some economists said temporary layoffs stemming from the spring holidays have inflated the figures. Many school employees are laid off during spring break and are eligible to file for benefits.
“What we’re seeing in the numbers is not unusual at this time of year,” said Carl Riccadonna, an economist at Deutsche Bank. Applications will likely fall in the coming weeks, he added.
Others said the gains may not only reflect seasonal adjustments.
“Discouraging news on initial jobless claims suggests job growth is slowing,” said Jennifer Lee, an economist at BMO Capital Markets. “Still growing, mind you, but at a slower pace.”
Hiring weakened in March after a fast start this year. Employers added only 120,000 jobs in March _ half the pace of the previous three months.
Many economists downplayed the weak March figures, noting that a warmer winter may have led to some earlier hiring in January and February. They have noted that the economy has added an average of 212,000 jobs per month in the January-March quarter, well ahead of last year’s pace.
The unemployment rate has fallen to 8.2 percent in March from 9.1 percent in August. Part of the drop was because people gave up looking for work. People who are out of work but not looking for jobs aren’t counted among the unemployed.
Lower benefit applications indicate that companies are cutting fewer jobs. And economists note that unemployment benefit applications are at a much lower level than they were last year, which is a hopeful sign that March’s weak numbers were a temporary lull. Economists say they will have a better sense of the trend in hiring when the government issues the April jobs report next month.
Walgreen Co. has already suffered punishing losses since December, when it ended its contract with Express Scripts after a bitter public dispute over pharmacy reimbursement rates.
And with this week’s merger of Express Scripts and Medco Health Solutions Inc, Walgreen will have to contend with an even larger giant.
Now commanding more than 40 percent of the pharmacy benefit management market, north St. Louis County–based Express Scripts Holding Co. likely will likely demand big concessions from other drug store chains and grocery markets that operate pharmacies.
Walgreen standoff with Express Scripts provides a telling test case of industry fears that the now super-sized Express Scripts, the nation’s biggest PBM, wields too much market power. Critics of the merger have contended the merger will give Express Scripts unchecked ability to force untenable contracts on retail pharmacies, while pushing consumers into getting their drugs by direct mail.
For now, Express Scripts plans to operate Medco as a stand-alone business. Express Script “absolutely will have more negotiating gower in dealing with both the chains and the independents,” said Jeff Jonas, a stock analyst at Gabelli & Co, an investment management firm in Rye, N.Y. “But they need to integrate the companies first, which could take up to 18 months.”
Jonas estimates that Walgreens stands to lose $4 billion in revenue in 2012 — about 6 percent of its total revenue — due to lost prescription sales from the Express Scripts contract, and could lose another $3 billion in 2013.
Walgreen Co. Vice President Michael Polzin said the company intends to honor its existing contract with Medco, but would not disclose when that contract is set to expire. Express Scripts spokesman Brian Henry also declined comment on the specifics of the Medco-Walgreens contract.
Employers contract with pharmacy benefit managers to cover their workers’ drug benefits. PBMs then deliver drugs through the mail or reimburse pharmacies for filling prescriptions.
From Walgreen’s perspective, the only thing worse than losing the Express Scripts deal would have been taking it.
“We firmly believe that this decision was in the long-term interests of our customers, employees, and shareholders,” said Michael Polzin, a Walgreens vice president. “We expect the short-term impact to lessen over time. If the same terms are offered to us by another company, it still wouldn’t be in our long-term interest to accept those terms.”
In the meantime, Walgreen will pursue a strategy of aggressively seeking deals with small and mid-sized pharmacy benefit managers and remaking its stores to offer a wider array of health and wellness services to consumers. And it’s trying to get lean for the challenges ahead, cutting costs at its corporate offices in Deerfield, Il., which began several months ago and will continue, probably including layoffs, Polzin said.
Walgreen has largely shied away from public comments about the Express Scripts-Medco merger, but other drug store and supermarket representatives have asserted that consumers will lose as Express Scripts drives up prices and profits.
Express Scripts, which has built its business on cutting health costs, counters that economies of scale resulting from the deal will in fact drive down consumer prices. “We have a robust and competitive industry, by any analysis,” said Express Scripts’ Henry. “We’re going to have to compete against a large number of PBMs who have their own special niche in the marketplace. … We believe we have a very healthy relationship with over 60,000 retail pharmacies and that will only continue.”
Walgreens dropped its contract with Express Scripts on Jan. 1 after months of stalled talks, and has seen its rivals — including CVS Caremark, WalMart, and Rite-Aid, along with supermarket pharmacies — openly advertise that their readiness to fill prescriptions of Express Scripts members. And those competitors have picked up a sizeable chunk of Walgreens’ business.
The drug store chain reported March sales of $6.02 billion, a decrease of 4.3 percent from the previous year.
“The negative impact on comparable store prescriptions filled due to no longer being part of the Express Scripts, Inc. pharmacy network was 10.7 percentage points,” Walgreens disclosed Thursday in a news release.
Meanwhile, Moody’s Investors Service on Thursday downgraded Walgreen’s credit rating by one small notch. The rating service voiced concern about the drug chain’s ability to win back Express Scripts customers.
So the conventional wisdom is that the Express Scripts-Medco merger puts Walgreens over an even deeper barrel. Walgreens might get along without Express Scripts but probably can’t afford to lose Medco, said Judson Clark, a stock analyst at Edward Jones & Co. in Des Peres.
“It’s in the best interest of Walgreens to get a deal done,” Clark said.
Walgreens “made an attempt to play hardball with Express Scripts and it didn’t work. It looks like it’ll be difficult for Walgreens to grow with this hanging around their neck.”
Meanwhile, Walgreens is expanding its health-related business beyond the traditional pharmacy. Since November 2010, Walgreens has opened about 200 “wellness format” stores in Chicago, Indianapolis, and through its subsidiary, Duane-Reade locations, in New York.
The stores offer immunizations, health testing, disease management progreams, and the treatment of minor ailments such as skin rashes, with the goal of lowering overall healthcare costs. The stores accept insurance payments but also have cash prices.
“We’re looking to focus overall on health, pharmacy and wellness. To help people live well, stay well, and get well,” Polzin said. “And that means creating a new pharmacy and health experience … Expanding fresh healthy food offerings in the store. Bringing more beauty and cosmetic services.”
— Jim Gallagher of the Post-Dispatch contributed to this report
BATS Global Markets says it will replace Joe Ratterman as chairman of the board, even as the company’s directors expressed support for him as chief executive.
The announcement Tuesday came after technical difficulties derailed the exchange operator’s initial public offering last week.
BATS operates electronic markets for stocks and stock options in the United States and Europe. The Kansas-based company is a leading platform for high-frequency, computer-driven trading.
In a brief statement, BATS directors said Ratterman "continues to do a tremendous job as CEO of BATS."
"We fully support his leadership, vision and strategic direction as BATS continues to enhance competition and foster innovation in markets worldwide," the statement said.
But the directors still voted to replace Ratterman as chairman under "an enhanced corporate governance structure."
Ratterman, who has been the company’s chairman since 2007, will hold the position until a replacement is named, the directors said cash advance.
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BATS officially withdrew its IPO late Friday after it was forced to halt trading in its own stock and others because the company’s technology malfunctioned.
Ratterman publicly apologized for the problem, saying in a letter to customers that the company’s failure to perform "has no excuses."
BATS is third largest exchange operator in the United States after NYSE Euronext (, Fortune 500), which operates the New York Stock Exchange, and the NASDAQ OMX Group. ()
The company said this week that its troubles have not impacted its market share.
As of Monday, BATS boasted a 10.3% share of the U.S. equities market and a 25.4% share of the European market.
Thailand kept its key interest rate unchanged, pausing after two reductions as it raised its forecast for economic growth this year and predicted inflation pressure may increase. Stocks and the baht rose.
The Bank of Thailand held its benchmark one-day bond repurchase rate at 3 percent, it said in Bangkok today, a decision predicted by 19 of 21 economists in a Bloomberg News survey. The other two forecast a 0.25 percentage-point cut.
Central banks from Australia to South Korea refrained from cutting rates this month as higher energy costs boosted inflation risks, reducing the scope for monetary stimulus to counter a Chinese slowdown and Europe
Pump prices continued to march toward $4 a gallon Thursday, as signs of a stronger U.S. economy helped push benchmark oil near $108 per barrel.
Retail gasoline prices continued a five-week rise to a national average of $3.74 per gallon. That’s up 37 cents per gallon, or 11 percent, since late January, the last time gasoline prices fell. Prices have never been so high at this time of the year.
Benchmark crude rose 53 cents to $107.60 a barrel in New York. Brent crude, which is imported by many U.S. refiners to make gasoline, rose $1.91 to $124.57 a barrel in London.
Oil prices have risen 9 percent this year because global demand is high and supplies have been disrupted in South Sudan, Syria and elsewhere. There also is concern that tensions with Iran over its nuclear program could lead to further supply problems.
The U.S. economy has continued to grow even though high oil prices are taking spending money from consumers and make shipping and travel more expensive.
Economic data released Thursday showed applications for unemployment hit a four-year low, spending on residential construction rose and major retailers reported stronger-than-expected sales for February.
Stock prices rose on Wall Street Thursday, helped by the encouraging economic news. That bolstered the feeling that the economy could start burning more oil payday loans.
“It’s almost impossible for oil to stay down with equities rising,” said Rich Ilczyszyn, an analyst at ITrader.
Economists worry that high oil prices will eventually take a toll on the economy, though.
“We’ve weathered it OK so far, but it could become a much stronger headwind than we anticipate,” said Diane Swonk, chief economist at Mesirow Financial.
Consumers have been helped by low heating and electricity bills this winter, which have eased the pain of high fill-up costs. The weather has been unusually mild across much of the country and natural gas, which is used to heat many homes and to generate electricity, has been cheap.
Natural gas futures fell more than 6 percent Thursday to $2.46 per thousand cubic feet after the government reported that supplies of natural gas declined less than anticipated last week. The nation’s supplies in storage are 45 percent above the five-year average and prices are close to a 10-year low.
In other energy trading, gasoline futures rose 4 cents to $3.30 a gallon. Heating oil rose by 1 cent to $3.22 a gallon.
A two-point gain was enough to push the Standard & Poor’s 500 index to its highest level since June 2008, three months before the collapse of Lehman Brothers and the darkest days of the financial crisis.
The S&P 500 index closed at 1,365.74, beating its 2011 closing high by two points.
For the second day this week, the Dow Jones industrial average nudged above 13,000 then pulled back. It rose 29 points in the morning but wavered in the afternoon. The Dow dropped 1.74 points to close at 12,982.95. American Express was the leading stock among the 30 that make up the average, gaining 1.2 percent.
It was a similar story on Tuesday, when the Dow flitted above 13,000 three times but ended the day lower. The average hasn’t closed above 13,000 since May 19, 2008.
What will it take for the Dow to close above 13,000 and stay there? Mark Lamkin, CEO of Lamkin Wealth Management in Louisville, Ky., said it would require a surprising news event, like a huge merger or an economic report that blows past expectations.
“It needs some type of surprise, a bombshell,” Lamkin said. “We’ve had a pretty good run over the past four months. Now it’s going to take something great to keep it above 13,000.”
The two economic reports out Friday didn’t make the cut.
A consumer sentiment index taken by the University of Michigan and Reuters edged up in February to its highest level in a year. And the Commerce Department reported that sales of new homes dipped slightly in January, but the figure still topped economists’ estimates. It also said sales in the final three months of 2011 were higher than previously reported.
“The numbers are just OK,” Lamkin said. “They weren’t bad, but they weren’t great, either.”
In other trading, the Nasdaq composite index rose 6.77 points to 2,963.75.
Oil prices hit a nine-month high of $109.77 a barrel. The price of oil has jumped 10 percent this month amid rising concerns about a conflict with Iran.
The euro added a penny against the dollar, hitting $1.346, its highest since Dec. 5. Greece made a formal offer to creditors to swap their Greek government bonds for new ones, another step toward knocking $142 billion off its debts. The swap is part of a deal to prevent Greece from defaulting on a debt payment due next month.
Stock indexes have been climbing since November as European officials redoubled their efforts to contain the region’s debt crisis and the European Central Bank extended cheap loans to troubled banks. The S&P 500 index has gained 8.6 percent to start 2012, better than its long-term annual average gain.
In contrast to the volatile trading of late last year, the market’s gains have been small but steady. To Lamkin, the lack of large swings looks ominous. The world is still full of dangers, he said. Lamkin tells his clients that the top risks are another flare-up in the European debt crisis and a war between Israel and Iran.
“When the next big thing happens, and it will, you’re going to see a pullback,” he said. “I think we’re due.”
Among stocks making big moves:
_ Sprint Nextel Corp. lost 2 percent. The country’s largest cable company, Comcast, filed a suit against Sprint Nextel, alleging that it was violating Comcast’s patents.
_ Gap fell 4 percent. The clothing retailer reported a 40 percent plunge in quarterly profit after the market closed Thursday. Gap said higher costs and deep discounts weighed on its revenue.
_ Deckers Outdoor Corp. sank 14 percent after the maker of Ugg boots and Teva footwear said higher costs will lead to lower profits for the quarter and full year.
_ Kenneth Cole Production Inc. soared 18 percent to $15.49 on news that Kenneth Cole is offering to buy the rest of the company. Cole currently holds about 47 percent of the company and has offered would give stockholders $15 per share, a 15 percent premium to the company’s Thursday closing price.
Asian stock markets fell Tuesday even as European leaders appeared to have finally clinched a deal for a rescue package to prevent Greece from going belly up.
Japan’s Nikkei 225 index was down 0.2 percent at 9,464.19. Hong Kong’s Hang Seng fell 0.5 percent to 21,323.99 and South Korea’s Kospi lost 0.8 percent to 2,009.79. Benchmarks in Taiwan, Singapore, mainland China and the Philippines also fell.
Australia’s S&P/ASX 200 added 0.7 percent to 4,287.10. New Zealand and Indonesia also rose.
Early Tuesday, a EU diplomat The Associated Press that European leaders had agreed to a rescue package for Greece, which has been teetering on the brink of a major debt default. The rescue money had been delayed because lenders wanted the country to do more cost-cutting first.
The diplomat spoke on condition of anonymity because a formal announcement was pending.
Greece urgently needs the euro130 billion ($170 billion) package before it can move ahead with yet another deal to sharply reduce the amount of money Greece owes its private investors. Without the money, Greece will default on its debts, starting on March 20 when a bond repayment is due.
But the reported deal didn’t make a dent on markets. Many observers feel it falls far short of what Greece needs to prevent financial collapse.
On top of that: Europe does not have the will or the ability to spend the amount actually required to keep Athens afloat, analysts said.
“Greece is a hopeless case,” said Francis Lun, managing director of Lyncean Holdings in Hong Kong.
In Tokyo, a waning yen failed to perk up many of Japan’s big exporters, whose profits increase when the home currency weakens. Panasonic Corp. lost 2.1 percent, Sharp Corp. fell 1.6 percent and Nintendo Co. fell 1.4 percent.
In Australia strong earnings reports helped set a positive tone. OneSteel, the country’s second-biggest steel maker, jumped 11.9 percent after releasing a bullish forecast about growth from its mining interests.
U.S. markets were closed Monday for President’s Day holiday. Traders will be looking for signs of economic recovery in the world’s No. 1 economy on Wednesday, when the National Association of Realtors releases existing home sales for January.
Benchmark oil for March delivery was up $1.65 to $105.25 a barrel in electronic trading on the New York Mercantile Exchange.
The euro jumped to $1.3269 from $1.3159 late Friday in New York. The dollar rose to 79.68 yen from 79.46 yen.
Gasoline prices jumped 0.9 percent in January, pushing overall consumer prices up at their fastest clip in four months and offering a reminder of the risks energy costs could pose to the economic recovery.
Still, the 0.2 percent increase in the Consumer Price Index reported by the Labor Department on Friday is unlikely to ring alarm bells at the Federal Reserve, which is trying to decide whether the economy needs another dose of monetary stimulus.
“(The data) doesn’t prevent another round of quantitative easing to stimulate the economy,” said Brian Kim, a currency strategist at the Royal Bank of Scotland in Stamford, Connecticut.
The rise in prices was just below analysts’ expectations of a 0.3 percent increase.
The gain in gasoline prices was the first in four months. Tensions in the Middle East have been pushing oil prices higher, leading to extra costs at the pump for Americans.
After rising throughout January, the national price for regular unleaded gasoline prices rose to $3.58 a gallon in the week through Monday, according to the Energy Information Administration. It had started the year around $3.32 a gallon.
The Labor Department report showed that after stripping out food and energy, the so-called core reading rose 0.2 percent, which was in line with expectations.
However, the report also showed the rate of core price increases in the twelve months through January unexpectedly climbed to 2 online pay day loans.3 percent.
The increase in the 12-month core reading, which is seen as a barometer of inflation trends, might be read as a sign that inflation pressures are not subsiding as quickly as expected.
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Graphic on January U.S. CPI: link.reuters.com/xyr66s
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At the close of its January meeting, the Fed said it would likely keep interest rates at rock-bottom levels until at least late 2014. Fed Chairman Ben Bernanke expressed caution about recent improvements in the economy and left the door open to further Fed bond buying to boost growth.
U.S. stock investors shrugged off the inflation data. U.S. Treasury debt prices held at lower levels.
Earlier, world stocks hit a fresh 6-1/2 month high and the euro held above recent lows as hopes Greece will seal a long-awaited bailout deal next week fuelled risk appetite.
Overall consumer prices rose 2.9 percent year-on-year after increasing 3.0 percent in December. That was in line with economists’ expectations.
Moderating the monthly gain in core prices, used car and truck prices fell 1.0 percent and new vehicle prices were flat.
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