THE BLOG

Facebook IPO After Six Months

11/04/2012 09:55 pm ET | Updated Jan 04, 2013

This article is a follow-up to my previous article about the Facebook IPO. These were the key takeaways:

  • It will reignite interest in the stock market
  • It will be overvalued at the IPO
  • It will grow into its valuation over time
  • It will succumb to the law of large numbers
  • The easy money has already been made

Typically I don't like to speculate specifically of what I think will occur and at what time -- something I have learned not to do from participating in the stock market since childhood.

However, this event was unusual and I was happy to comment on how I thought this would play out.

History repeats itself and human nature doesn't change.

To hold myself accountable, let's go through what I speculated would happen compared to what actually occurred two months after I posted my original article.

Did it reignite interest in the stock market?

Yes. There was more interest and hype around this IPO than even Google attracted back in 2004. The IPO and stock market generally became the new thing to talk about. One of the traders on Roboinvest got interviewed by the Huffington Post not once but twice.

Was the IPO overvalued?

Yes. It was sold to retail investors at a valuation of $80 billion or $38 per share, and now six months later the company is valued at $45 billion or $21 per share.

Will it grow into its valuation over time?

Yes. Unless Mark Zuckerberg and his management team completely screw up the next few years, it will grow into its valuation as they focus on profit and not user growth in much the same way that Google did, and probably exceed their $80 billion IPO valuation.

Will it succumb to the law of large numbers?

Yes. Their growth has slowed because they are running out of people on the Internet to sign up to their service. In future, their growth will be more modest and incremental. There is no question that they can still grow from where they are now, but it will not be the magnitude they experienced during its first decade.

Has the easy money been made?

Yes. All early investors and employees cashed out during the IPO, and as new stock becomes unrestricted, further sales are occurring.

Perhaps it could have been a different result if the people handling the IPO process had not screwed up, which resulted in a number of lawsuits and payouts.

Overall the IPO was a huge success for the company financially, but a disaster for retail investors.

On that note, look out for my next post on what I think is a new trend that is one of the worst things to happen to the stock market since the global financial crisis.

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