This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Cramer: Facebook IPO Doesn't Mark a Top

NEW YORK ( Real Money) -- Any frenzy is bad. Any. So, a Facebook (FB - Get Report) frenzy can't be excepted.

We know that this deal is going to be fraught with everything that is wrong with the IPO process:
  • Difficult allocations given to the biggest clients, while the biggest users of the product believe they should get stock and angry retail investors can't believe they aren't going to be able to.
  • Valuations that go from reasonable on the out years to just crazy on them.
  • Insider sellers getting out at big gains, while those who buy in the aftermarket will be mostly saddled with losses if history plays any role.

But the company's real. It has real earnings and despite the market capitalization, north of $100 billion, it is worth a great deal if it can pull the transition off from desktop to mobile.

How much?

The difference between the $2 a share that it could earn two-and-a-half years from now, the expected high growth trajectory, and $4, which is the stretch goal if they can get mobile to be worth what desktop is for advertisers.

It's only within the context of those out years' earnings that any of this makes sense. Otherwise you wouldn't want to be in on the IPO, let alone the aftermarket.

I hear the chatter endlessly: this is the top, this is a bad thing for the market, this is the type of thing that shows you how unfair the process is.

I have some bad news for you: markets aren't controlled by irony. Facebook can't mark the peak. We had that at the beginning of April. One deal, even the biggest deal, won't mean that much unless it flops. If it succeeds it won't have that much impact, but it won't be a negative one.

Yes, it is not a great thing that the insiders are able to bail so heavily and the record for Internet IPOs in the aftermarket is atrocious.

But keep in mind that the closest analogue of the 10 social media deals we have had in this particular era is LinkedIn (LNKD - Get Report), the only real successful entity that's hit our screens. LinkedIn makes money but, alas, you could pay double the range for Facebook and still not be paying the high multiple that LinkedIn's getting.

The process is unfair. The deal is way too hot. But it is indisputable that the company is a fast-growing well run enterprise that is worth a great deal, just not as much as people might pay with a market order to buy stock at the opening tomorrow or any other point during that day.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Real Money
Try it NOW

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums


Chart of I:DJI
DOW 17,888.35 +168.43 0.95%
S&P 500 2,102.63 +22.22 1.07%
NASDAQ 5,156.3060 +47.64 0.93%

Our Tweets

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs