This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
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
TheStreet Open House

A Debate: Should You Jump In On Facebook Debut?

Stocks in this article: AAPL FB GOOG KFT LNKD SCOR

Another problem with Facebook is that the very qualities that made it so successful as a private firm could sink it as a public one.

Facebook says in its IPO papers that it's not about to rein in the sort of rebel culture at the company that has encouraged "innovation" just to deliver "short-term" profits that please Wall Street investors.

If only "short-term" profits were the only demand. When you go public, you are promising investors that your profits will not only rise, but do so consistently, quarter after quarter, in predictable increments. It's a fiction. The nature of many businesses is such that profits come in messy lumps. But companies exploit loose accounting rules, as Wall Street expects them to do, to make their profits seem smoother than they really are.

Is Facebook not going play this game, either? That would be admirable. And disastrous for investors.

I suspect what's got people in a lather about Facebook is that they think it could become the next Google or Amazon. Those stocks went public at high earnings multiples, and still managed to reward investors handsomely.

But the bulls forget the big role played by happenstance and luck in business success, and how difficult it is to separate winners from clunkers ahead of time. And there have been a lot of clunkers: ICG, Priceline.com, Pets.com, Netscape and, more recently, Pandora Media, Demand Media and Groupon. The stocks of those latter three are down more than a third from their IPOs last year.

Maybe this is just a matter of taste. I prefer the dowdy and obscure over the hot and well-known.

But I think there's another distinction here. Facebook is a gamble, a fun fling, like buying a lottery ticket. The valuation is just too high, the unknowns too many, to call it an investment. If you're going to sink money into the company, recognize that much at least.

Copyright 2011 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
6 of 6

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link 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
Quant Ratings

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
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, 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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,387.21 -291.49 -1.65%
S&P 500 2,029.55 -27.54 -1.34%
NASDAQ 4,681.4970 -90.2660 -1.89%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs