If you’re waiting on the Facebook IPO, there are a few things you must know before you jump in, and one thing is that not all investors will be able to grab Facebook shares the day of its initial public offering.
While Facebook is a unique company with 900 million users, some recent IPOs serve as reminders that the sizzle for once hot companies can fade quickly.
Of seven media or social media company IPOs in the last year, only LinkedIn is now trading above where its stock closed after its trading debut.
Millennial Media, a mobile advertising company, saw its shares jump 92 percent the day its shares debuted in late March. Since then, the stock has slid nearly 46 percent to $13.40, as of Tuesday’s close.
Last year, shares of Demand Media jumped 33 percent on the company’s initial day of trading. Over the next six months, they fell 49 percent, and are down about 63 percent overall as of Tuesday. And investors who bought shares of Groupon after they closed 31 percent higher on the first day in November have lost 53 percent as of Tuesday’s close as the company’s shares slid to $12.17 each.
Optimistic potential investors in Facebook, co-founded by Mark Zuckerberg in 2004, may consider the company immune to a post-IPO letdown because of its popularity.
Facebook, which is expected to have its initial public offering on Friday, is planning to raise as much as $16 billion by selling about 421 million shares at a target price range of $34 to $38 each. While the company has set aside some shares for retail investors, brokers tend to reserve this allotment for wealthier clients.
Those who don’t qualify will be stuck trying to get in on the buying frenzy of the first day, at a time when some analysts expect shares of Facebook to pop more than 30 percent to more than $50 each.
Waiting a week or two from the first day of trading may prove to be more profitable than trying to get in on the first day, analysts said.
“You want some of the frothiness from the excitement of the IPO to burn off,” said Jim Krapfel, an analyst at Morningstar who covers the company and values the company at $32 per share. Buying at the first day’s closing price would leave “limited upside for long-term fundamental investors,” he said in a recent report on the company.