Facebook IPO: “A million dollars isn’t cool. You know what’s cool? A billion dollars.”

Thursday Facebook will have a price for it’s long waited IPO.  The price could be anywhere from $34 to the $38 range. That price however will not be what you get it for unless you are a client of Morgan Stanley or one of the other key underwriters.  Some very lucky investors will get shares and by lucky I mean ridiculously wealthy.

Normal folks will be able to buy shares tomorrow between 10 or 11AM. The market opens before that at 9:30 am but it takes an hour or more to have the stock  make it to the 2nd market. The reason for the delay is that Facebook didn’t take the “Dutch auction” route that would have allowed direct bidding by investors. That is what Google did with their IPO; thus giving the everyman a fair chance.

Facebook understands that people want their stock and want it bad. So they will sell about 25% more shares than it had originally planned. That brings the total IPO offering to 421 million shares.   Facebook will raise about $16 billion in its IPO; making it the largest tech IPO in history.  Only Visa ($19.7 billion) and GM ($18.1 billion) had bigger IPO in the U.S.  Facebook could have a market capitalization of $81 to $108 billion on the very first day on the market if employees and executives exercise stock options. Mark Zuckerberg will sell 30.2 million shares in the IPO offering for a profit of $1 billion. He will use most of it to cover the big tax bill. Do not feel too bad for him though he will still have 503.6 million shares (31% of Facebook) worth $19.1 billion.

Should you jump onto this gravy train now are wait for 2nd supper? To answer that question I have a few bullet points:

  • There is no way to know where the stock will open.  Don’t even bother to guess, instead think of a number you are comfortable paying to play.
  • Establishing a trade pattern is not going to happen in one day. The stock is going to up but will it stay that way? Nope/yes/who knows. Set triggers!

What you do not want to do is miss the first pop of an IPO and end up buying shares at a premium. So the decision comes down to flip or not to flip. I plan to buy as much as I can. That said, I always tell people “Triggers are your friend.” You should always set a ceiling price to sell. It serves as a slap on the wrist  stop you from being too greedy. You also want to set a price to serve as parachute in case the floor disappears all of a sudden. Below is a chart of a few recent IPO’s. It’s not all good all the time. Choose wisely when to get out. You may not make a billion or even a million but you sure can make 5 to 6 figures out of this stock.

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