With a projected valuation of as much as $100 billion, Facebook’s imminent IPO may portend great things for social media. But many planners feel less bullish about its prospects for delivering investment returns.
“We have seen multiple studies that show that the majority of people who invest in IPOs don’t make any money,” says Thomas Muldowney, founder of Savant Capital in Rockford, Ill. “We don’t encourage it.”
Only after the excitement of the IPO do share prices tend to settle into their real auction prices, Muldowney says.
Others agree. David Lees, senior partner with myCIO Wealth Partners in Philadelphia, Penn., says his clients who are interested in a piece of the Facebook IPO are looking for a quick flip.
“They want a big pop. They have memories of Dot-com days,” Lees says. He adds that he doesn’t recommend they act on that impulse. “In terms of fundamentals, it looks like it will be trading at 100 times earnings, so lots of growth is assumed.”
Jeff Corbin, a strategic communications and investor relations expert based in New York City, says the numbers don’t lie. After reviewing SEC filings related to the coming IPO, Corbin says, “Other than general ideas on how the company plans to diversify and move away from what is now essentially an advertising business model, there is no indication on how it plans to do so or how long it will take.”
Kenneth Wisnefski, an online marketing expert and founder of search engine marketing firm, WebiMax, thinks Facebook could ultimately prove to be a fad.
Intense competition from Google and Bing pose serious threats given that Facebook is primarily focused on sharing images, checking status updates and running apps, according to Wisnefski. Google and Bing are well diversified and are in a much stronger position than Facebook to leverage ad revenue over the long term, he says.
While he doesn’t consider Facebook a good long-term investment, Lees adds, “That said, we probably thought the same way when Google went public.”