Want to invest in Facebook? Here's what you need to know

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Facebook CEO Mark Zuckerberg in the company's offices in Palo Alto, California, in 2007. (AP Photo/Paul Sakuma)

First aired on The Current (15/5/12)


On Friday, Facebook is going public. It's anticipated that it will be the biggest internet Initial Public Offering, or IPO, ever. Facebook sent a show on the road to entice investors, and investment bankers have been drumming up interest in the stock all week long. Business pages are estimating that the initial price of stocks will be $34 to $38 a share. Facebook's value could be over $100 billion by week's end.

However, if you're looking to put money into Facebook, it's advisable not to buy into the hype. Take a step back and watch how the stock performs over the next few weeks before jumping into the game. That's the advice that financial journalist Nancy Miller, author of the e-book The Facebook IPO Primer, and David Andrews, director of investment management at the Canadian investment firm Richardson GMP, are giving potential investors.

Why? No investor is going to get rich off Facebook. "You have to remember that the big money on this deal has already been made by the Facebook executives and those early venture capitalists that already invested in the company some years ago," Andrews explained to The Current host Anna Maria Tremonti in a recent interview.

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If that doesn't bother you, and you want to get in the Facebook game anyway, Andrews cautions that you need to "be a disciplined investor." IPOs' stock, especially IPOS with lots of public interest, like Google in 2004 and Facebook today, tend to do very, very well in the first few days of trading. Google's stock jumped in value by 18 per cent. But that growth isn't sustained. Eventually, the price will stabilize and the stock will experience a period of "consolidation." Smart investors get in the game when they have a better idea of how the stock is going to perform in the day-to-day market.

Also something to consider is the current economic climate. When Google went public in 2004, the international economy was significantly stronger than it is today. investors had more money to play with and were more comfortable taking big risks. But once you consider " the events in Europe, the slowing in China and the uncertainty in the U.S. economy," it's difficult to assess how Facebook will do after the IPO.

Another risk factor is Mark Zuckerberg himself. When investors buy stock in a company, there are certain expectations from the shareholders about annual reports and the direction the company takes after it's gone public. However, Zuckerberg has made it very clear he will continue to run Facebook as if it were a private company (and he can, seeing as he will maintain 57 per cent of the voting rights after the IPO). Andrews feels that Zuckerberg is being ambitious about the level of control he can exert, because being a public company "still will affect the way the company is run on a day-to-day basis" no matter how hard-headed the CEO is. However, the Facebook brand is intertwined with the Zuckerberg brand. As a result, "if you're buying Facebook," Miller said, "you're buying Mark Zuckerberg."

So, how much is Zuckerberg worth? We'll find out on Friday.



You can view the Facebook investor prospectus below:

Facebook Ipo Prospectus
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