Market Beat | The Facebook IPO: what you need to know
TRUCKEE, Calif. andamp;#8212; Iandamp;#8217;m sure most readers are familiar with Facebook, its popularity and rapid growth has been astounding. Facebook is scheduled to do an IPO later this week, which has lead to many people asking, what is an IPO and how can I participate?IPO stands for initial public offering. An IPO occurs when a private company makes the decision to become a public company. Once a company is public and its shares are trading on an exchange andamp;#8212; anyone can buy some stock, have an ownership stake in the company and have a claim on future cash flows.The IPO is brought out by an underwriter, or as in the case of Facebook, a group of underwriters. The regulatory process involved with clearing the Securities and Exchange Commission is lengthy and expensive. Facebookandamp;#8217;s IPO was scheduled for May 18, but now it looks like that will be delayed as it clears the final regulatory hurdles.Facebook is being underwritten by some of the major Wall Street firms including Goldman Sachs, JP Morgan, Morgan Stanley, Merrill Lynch and others. The underwriters are expected to earn about $50 million on the deal. They are planning on selling 180 million shares, and the price should be between $28 and $35 per share, which will value the company at up to $96 billion.If you want to get stock at the IPO price you have to be a client of one of the underwriting firms and subscribe to the offering to see if you can get any stock. The firms typically allocate shares to their best clients to keep them happy, so you can expect a lot of shares to go to big pension funds, mutual funds and other large institutional accounts.An offering like Facebookandamp;#8217;s will be oversubscribed which means that investors who try to subscribe to the offering are not going to get as many shares as theyandamp;#8217;d like.If youandamp;#8217;re not fortunate enough to be on the list of preferred clients who get their stock at the offering price, you have to wait until the day itandamp;#8217;s issued and begins trading publicly.Some IPOs can have rapid upward price movement as soon as they begin trading and if you want to buy shortly after the offering is complete you may have to pay a significantly higher price than the shares were issued at. Some analysts are predicting that Facebook will go as high as $46.This will be one of the most important technology IPOs in a long time and it will be interesting to see how the market decides to value the company.Kenneth Roberts is a Truckee based Registered Investment Advisor. Information on his money management service can be found at http://www.fusiontargetretirement.com or by calling 775-657-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
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