I do not have a Facebook account, but I am familiar with some of the lingo, and if this stock opens near the price of the IPO, I’ll be pressing the “Like” button.
At this time, the IPO range for Facebook (NASDAQ: FB) has been set at 28-35. If my broker called me up to buy stock at 40, I would say “how much can you get me?” In my opinion, if it opens at the projected range, it may trade much higher for several reasons.
Reason # 1: The Float is Low
I do not care what the “Street” says, the float on this issue is low. With the number of shares they are currently offering, chances are there won’t be enough supply to meet demand which means the stock could have a wicked rally immediately following the open. With only preferred investors able to participate in the initial offering, there will be huge retail demand in the secondary market.
Reason # 2: Cheap Price Relative to other High Flyers
I mean who wants to miss out on the next Apple (NASDAQ: AAPL), Google (NASDAQ:GOOG) or Priceline (NASDAQ: PCLN). As a result of their ridiculous prices and illiquid markets, there is very little retail interest in those issues. Why buy 100 shares of AAPL when you can buy 1000 shares of FB for a little more than half of the amount? The company is attempting to price the IPO reasonably so that it’s users can participate in it’s anticipated growth. The arrogance of Apple, PCLN and with GOOG (recent 2 for 1) not to split their stock is akin to telling the retail investor that they are not worthy of owning their stock.
Reason # 3: Interest in Product = Interest in Stock
Along the lines of the retail investor mindset, how often have you purchased the stock of a company simply because you like their product or had a really good meal? To be honest, I have on a few occasions, but my preferred strategy is to short companies with poor customer service or if I am served a terrible meal. But with 500,000,000 users and growing everyday, that love for the product (many are addicted to it) will inevitably drive initial demand for the stock. It is hard to fathom that some Facebook fanatics won’t take some of their cash from under their mattresses and buy this stock, thinking they can retire off this issue.
Implications for the Overall Market
Many retail investors have been on the sidelines for the majority of this year’s rally. Those same retail investors need some type of catalyst to get them back into the market. The Facebook IPO may be just what the doctor ordered. If the price of Facebook soars in the first few trading sessions, this could initiate a media frenzy, which would be just the type of catalyst that is needed to drive interest back into the overall market.