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), 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.
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