All That’s On My Mind Right Now Is The Facebook IPO

Every minute that passes by is another minute I’m thinking about Facebook. It’s on the tip of everybody’s tongue right now, and I mean everybody, Grandma’s, kids, parents, teenagers, young adults, professionals, they all are at the very least thinking about making a bet on Facebook stock.

Here are my thoughts on it.

Bottom line is that I’m going to buy Facebook stock and the primary reason is because, simply put, this company is making truckloads of money off of its business model, which is still very much in its infancy. Not only is the company making money, but they are doing it in a way that almost seems unfair in the way that Apple and Google make money, they are doing it off of digital products, so the only hard costs involved are brain power and server space.

With that being said, I’m mentally and emotionally prepared to go for a wild ride on this stock, and the reason is because of the mania that is behind it. The underwriters of Facebook have been able to market this stock, quite literally, to the world, which means retail investors of all shapes, colors and sizes will be getting in, and all of them will be jumpy.

But I can’t deny the revenue growth. The money that Facebook makes is real and is growing. This isn’t a situation where we are buying into an online business IDEA that is drowning in investor debt and has computer engineers who think they are geniuses because they know how to restart a computer when it freezes. This isn’t a situation. Facebook, for anyone who doesn’t get this, makes money, and they completely dominate the space that they make it, which is social networking. Nobody even comes close. Below is their revenue from 2007 up until the end of 2011.

Year Ended December 31,  
   2007     2008     2009      2010      2011  
     (in millions, except per share data)  
Consolidated Statements of Operations Data:             
Revenue    $ 153      $ 272      $ 777       $ 1,974       $ 3,711  

Beginning in 2007 up until 2011, this company has been growing at a rapid pace, and they’ve been building the revenue with calm, smart, seasoned executives behind the wheel. It’s not all just Mark Zuckerberg running this show. Seasoned veterans from Google who get the online ad business are his left and right hands, and their stock incentives to grow the company are staggering. Nobody on the board is going along for a ride, in fact, their salaries are almost laughable. Sheryl K. Sandberg, David A. Ebersman and Mike Schroepfer, all Facebook top executives are all making under 300 thousand dollars per year as base salaries, it’s their equity in the company that is making them all millionaires. Everybody that is at the top of the food chain at Facebook has their wealth and reputation are at stake with the success or failure with the companies stock price. And then of course there is Zuckerberg, who is pulling a Steve Jobs, and is will have his salary reduced to one dollar.

What they have accomplished already, with nearly a text book marketing strategy of their IPO, says to me that we’re not dealing with a bunch of Groupon idiots, we’re dealing with people who mean business.

I’m not going into this blindly though, and I will say, there are other investments that I find to be more attractive in terms of feeling secure. But buying into Facebook stock isn’t about feeling secure, this is about taking on a real, calculated risk with a real reward, and not taking a risk is failure.

I also have raised an eyebrow today about the underwriters increasing the amount of shares they are selling, most specifically Tiger Global Management who have increased the amount of shares they are selling to 23.4 million shares, almost 7 times the amount first offered. Goldman Sachs now plans to sell 28.7 million shares, more than double the amount earlier. Facebook’s executives and directors increased the amount of shares they’re selling 62 percent to 189.4 million.

None of this says to me that these guys are running from a sinking ship, as they are also holding an incredible amount of shares to keep for themselves, what it does say to me however is that they think there will be a mania for the IPO, where they can sell shares at inflated prices then re-buy them back when the sell-off comes, bringing in the level minded investors.

My investment strategy is pretty straight forward. I’ll be buying Facebook next week, when the dust settles off of the IPO, with an aggressive stop loss, which I will increase if the share price increases.

Simply put, I want to own Facebook, and my personal nightmare is to see this stock trading for three times as much five years from now, and me looking back on this moment and saying, man I wish I had bought some of that at the time.


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