Facebook stock IPO frenzy: Should you buy in?Posted: Updated:
NEW YORK -- Make way for the man in the hoodie.
Facebook's Mark Zuckerberg has been getting the rock star treatment days before his company, valued at more than $100 billion, goes public.
But should he get your money when that happens?
Facebook announced on Thursday that it will up the price of its IPO to $38 a share, and stands to rake in $18 billion in a matter of hours.
“In this case, things are a little rich for my blood,” said Thomas Connelly, president of Versant Capital Management Inc.
While he sees the price of Facebook's IPO as being too high already, he expects the stock to sell for even more when its actually released, and says it'll be tough for investors to make their money back, much less a profit.
“There's a pop the first day that goes to favorite clients and institutions but after that on average, IPO's return considerably less than just investing in the stock market broadly,” he said.
The IPO - or initial public offering - is the first time a privately held company offers its shares to the public.
There are a few reasons why they do this:
1. They pay off early stage investors, like Zuckerberg.
2. They're legally obligated once a business gets more than 500 investors.
3. They raise money to expand the business.
“That's really how the founders cash out,” Connelly said.
Investment banks underwriting the IPO get the first crack at shares. They sell them to their best clients -- hedge funds, big money managers and insiders -- who get that IPO price.
Last on the food chain is the retail investor, better known as the average consumer.
E-Trade is an underwriter of the IPO and will have some shares available. TD Ameritrade and Charles Schwab will too. But for them, customers are said to need a six-figure account balance and a certain number of trades a month to get it.
So for investment newbies who want a shot at Facebook stock? “No, forget it. Not likely, you'll be able to get access,” Connelly said.