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."
Free health insurance quotes from affordable health insurance companies. Low cost medical coverage on group, family, or individual.
Japan
Get instant affordable car insurance rates from multiple carriers online.
After a precipitous four-year plunge in its share price, Research In Motion Ltd. has tumbled from its perch as Canada
British Prime Minister David Cameron says he discussed News Corp.’s bid to take full control of a British broadcaster with James Murdoch, but denies promising to support the deal in return for favorable coverage from the media giant’s newspapers.
A judge-led inquiry into media ethics in Britain has raised questions about the government’s links to News Corp., particularly as it deliberated on whether the firm should be authorized to take full control of British Sky Broadcasting, in which it holds a 39 percent stake.
Cameron told BBC television Sunday that had chatted about the takeover bid with James Murdoch at a Christmas party, but insisted he had not brokered any tit-for-tat deal with him or his media mogul father Rupert Murdoch.
Europe may add an annex to its budget treaty spelling out how countries can boost growth as the bloc shifts its emphasis on tackling the debt crisis, a German government official said.
Steps to raise competitiveness along with structural reforms are likely to feature in the prescriptions for growth, with a target date for completion by the June 18-19 Group of 20 leaders
Americans are buying record numbers of hybrid and electric cars as gas prices climb and new models arrive in showrooms, giving the vehicles their greatest share yet of the U.S. auto market.
Consumers bought a record 52,000 gas-electric hybrids and all-electric cars in March, up from 34,000 during the same month last year.
The two categories combined made up 3.64 percent of total U.S. sales, their highest monthly market share ever, according to Ward’s AutoInfoBank. The previous high was 3.56 percent in July 2009, during the Cash for Clunkers program.
And while their share of the market remains small, it’s a big leap from the start of the year, when hybrids and electrics made up 2.38 percent of new car sales.
Buyers were drawn by new models like the Toyota Prius C subcompact, the Prius V wagon and Camry hybrid. Gas prices near or above $4 per gallon added to the cars’ attraction.
Stronger sales of the Chevrolet Volt and the Nissan Leaf were a positive sign for electric car makers. The two have struggled to gain acceptance from buyers worried about how far they can drive on a battery charge.
Another concern: Volt maker General Motors Co. had to change the car’s charging system because its batteries caught fire after government crash tests.
GM sold just 7,671 Volts last year, below its goal of 10,000. But in March, it set a new monthly record of 2,289 for the Volt, an electric car with a small backup gas engine personal loan for poor credit. Sales of the all-electric Leaf nearly doubled to 579.
Gas prices helped sales. The nationwide average for a gallon of gas jumped 19 cents in March, from $3.73 to $3.92, and it crossed the $4 mark in California even earlier. The $4 mark was a significant psychological milestone, said Paul Lacy, who forecasts sales trends for consulting firm IHS Automotive.
Lacy expects hybrids and electrics to make up about 4 percent of U.S. sales this year, although sales could drop if gas prices fall or if buyers get more accustomed to higher prices.
Lacy predicts hybrids and electrics will double their market share to 8.5 percent by 2017, in part because there will be more options on the market. Last month, 35 hybrids and electrics were on sale, double the number from 2008.
The proliferation of models will also bring down costs. Hybrids cost around $2,000 to $4,000 more than their gas counterparts, which can make them less attractive. Edmunds.com estimates it takes 11 years’ worth of gas savings to recoup the $4,595 premium on the Honda Civic hybrid, or 5.2 years to make back the $3,400 premium on the Toyota Camry hybrid.
Toyota Motor Co.’s Prius hybrid cars were the runaway best-sellers last month. They made up 57 percent of all hybrids and electrics sold.
Fisker automotive executives said Wednesday the company is open to building its new Atlantic electric car someplace besides the former General Motors factory in Delaware where they originally planned the car’s assembly.
While they say they are still committed to the former GM plant, Fisker spokesman Russell Datz told CNNMoney that the company is flexible enough to make the car elsewhere, should a better offer materialize.
Company chairman Henrik Fisker told CNNMoney on Tuesday that the automaker has secured about $400 million in private equity financing.
Prior to Tuesday’s announcement, Fisker had been waiting on funding from a $529 million U.S. government loan so it could begin retooling the Delaware factory. The plant used to make the Pontiac Solstice, Saturn Sky and Opel GT convertibles for GM (, Fortune 500).
Fisker has already received $193 million of the government money and recently began selling its luxury, $103,000 plug-in "range extended" electric car called the Karma.
But the rest of the money has been held up due to what Fisker says were some missed production targets with the Karma guaranteed pay day loans.
The Karma is assembled in Finland.
Vice President Joe Biden, Delaware Gov. Jack Markell and Fisker CEO Henrik Fisker were together in 2009 to announce plans for the Delaware production facility.
At the time, union workers were promised the chance to fill many of the 2,000 factory jobs producing the plug-in electric sedan.
Besides the money issues, Fisker has experienced other problems of late.
They include a battery recall and some less-than-positive reviews of the Karma. Critics say the car does not perform as well as it should to justify its price.
The DOE has also come under intense scrutiny for its loan program in light of Solyndra, the failed solar panel maker that got a $535 million government backed loan.
CNNMoney’s Peter Valdes-Dapena contributed to this report.
Nearly five months after some $1.6 billion in customer money went missing at bankrupt brokerage MF Global, the question remains: Will anyone be held responsible?
A congressional subcommittee will take up the issue on Wednesday in the latest hearing on Capitol Hill to focus on the firm’s collapse. Watching anxiously will be the 38,000 former MF Global customers who are still missing money and are waiting for someone to be held accountable.
"We’ve been arguing for a long time that at a minimum, this was larceny," said John Roe, a partner at BTR Trading Group who has advocated on behalf of MF Global customers. "This was a company appropriating money that wasn’t its own."
While the case had been quiet in recent months, that changed last week when the subcommittee released a memo detailing a critical $200 million transfer out of an account holding customer funds.
The memo has reignited questions about who at MF Global knew that customer money had been appropriated and how that information could influence a possible criminal case.
It cites an email from MF Global assistant treasurer Edith O’Brien saying the transfer, to resolve an overdraft of an account at JPMorgan (, Fortune 500), came "Per JC’s [Jon Corzine’s] direct instructions."
The memo does not say, however, that Corzine ordered that the transfer use customer funds, in violation of industry rules.
Futures brokers like MF Global can hold their own cash in customer accounts along with that of their clients, and money belonging to the firm may be transferred out freely.
Testifying under oath before Congress last year, Corzine denied ordering the use of client money, saying he received assurances "both orally and in writing" that the transfer had been lawful.
Corzine’s spokesman also said last week that the former New Jersey governor had not specified from which account the transfer was to be made
No one from MF Global has been formally accused of wrongdoing, though the FBI and federal regulators are investigating.
In a criminal case, prosecutors must prove there was a deliberate intent to appropriate customer funds, or failing that, that there was "willful blindness" by Corzine or others to the fact that such funds were at risk, said Michael E. Clark, an attorney with the law firm Duane Morris and a former federal prosecutor.
"The practical problem is that, if there were instructions given to move the money from customer accounts, can they establish a direct link or is this going to be more circumstantial?" Clark said. The testimony of lower-level employees, he added, could be crucial to building a case.
Finding charges that stick: Shortly after the transfer to JPMorgan, the banking giant requested that O’Brien sign a letter certifying that the transaction complied with industry rules on the protection of customer funds. O’Brien was "reluctant" to sign this letter, according to the memo from the subcommittee, and it was never returned.
In addition, Terry Duffy, the head of exchange operator CME Group (), has accused MF Global of falsifying accounting statements in the week prior to its bankruptcy to conceal its use of customer funds.
O’Brien has been summoned to appear at Wednesday’s hearing along with several other former MF Global staffers, though she is expected to refuse to testify, invoking her Fifth Amendment right against self-incrimination.
Leaving aside the issue of the missing money, there are other ways prosecutors might pin charges on MF Global executives.
MF Global was felled after its disclosure of billions of dollars worth of bets on risky European debt sparked a panic among investors. Trading partners called for increased margin payments and clients began taking their business elsewhere, leaving the firm scrambling for cash to make good on its obligations.
Less than two weeks before MF Global went bankrupt, however, executives assured staff from ratings agency Standard & Poor’s that the firm was in good health. A week before the bankruptcy filing, CFO Henri Steenkamp told S&P that the firm was in "its strongest position ever as [a] public entity."
"Let’s ignore the missing $1.6 billion for a second and let’s talk about securities fraud, because you have the CFO running around telling ratings agencies that the company had never been in a stronger position, and that clearly wasn’t the case," said Roe, the customer advocate.
Again, a fraud charge would require proof that misstatements by MF Global executives about the health of the firm were intentional. Lawyers for Steenkamp and Corzine did not respond to requests for comment.
There’s also the Sarbanes-Oxley Act of 2002, which requires corporate officers like those at MF Global to certify that the internal risk controls at their firms are adequate. Ironically, Corzine helped write this law while serving in the Senate.
Sarbanes-Oxley violations can carry prison terms of up to 20 years. While the law has seldom been used in this context over the years, Clark said it could be part of a broader case against MF Global executives.
"I would hate to be in their shoes," he said.
Bank of England policy makers will maintain the size of their bond-buying program next week amid a split over whether the economy needs more stimulus, economists forecast.
The nine-member Monetary Policy Committee led by Governor Mervyn King will hold the target at 325 billion pounds ($521 billion) on April 5, according to all 39 economists in a Bloomberg News survey. They will also leave their key interest rate at a record low of 0.5 percent, said all 53 economists in a separate poll.
Divisions have emerged as a surge in oil prices threatens to stoke an inflation rate now in its third year above target while Europe
Hamburg, Europe
Powered by WordPress -- XHTML 1.0