Skeptical of Facebook IPO: Opinion


Was Facebook’s IPO overvalued? Yes. Although a technical glitch marred the opening this past Friday, Facebook’s shares plummeted throughout the day from a high of about $45 to close at $38.23, just 23 cents per share higher than the starting price.

I agree with analyst Bill Smead of Smead Capital Management, who said in this story that Facebook and its underwriters priced the stock at the top range of its potential.

“The underwriters got greedy on behalf of selling shareholders and bumped the price high enough that they didn’t get much of a bump on the first day,” Smead said.

Although Facebook is a large company and has a ton of users, how much growth potential does it have? There are simply some people who will never sign up for Facebook’s status updates and games.

Nor is advertising revenue a given for providing a steady stream of income, with GM’s announcement it was “unfriending” Facebook.

Facebook may yet prove it can avoid the fate of past would-be-giants like AOL and MySpace. But until then, betting your stock investments on Facebook will be risky business.

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About Jason Reynolds
I'm a reporter, blogger, husband and aspiring author. When I'm not working, spending time with the family, or reading (which is quite a bit), I enjoy cooking, traveling, photography and wrangling my family's cats and chickens.

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