IPOs

Initial Public Offerings

I suppose I have to say something about Facebook.

I am not one of the 800 million plus users.  I started to open an account a couple of years ago, but was ticked off by what I saw as an invasion of privacy and aborted that process.  But this is not about privacy issues though you should not underestimate its importance.  Here is what I gather amidst the giddiness as some journalists mix up revenues and earnings.

Earnings are growing at about 50% per year since 2009 to estimates of EBITDA of about $2 billion for 2011. Numbers are all over the place and are quite approximate. These growth rates are not uncommon. Google that trades around $590 now went public at about $90 per share through a dutch auction. That was less than 20 times earnings.  A $100 billion valuation for Facebook would imply that it goes public at 50 times earnings. Definitely not cheap.

You probably have read about the funky trading in Facebook shares. The few tidbits I could gather are: Microsoft and Li Ka-Shing separately took a $200 million plus stake in 2007-08 when valuations were in the $15 billion range. Russian outfit Digital Sky took another $200 million at a valuation of $10 billion in 2009. Goldman and Digital Sky put in about $1.5 billion in January 2011. (BTW,  this is what will contribute to GS profits not the revenues from underwriting, my bad in a post a few days ago). General Atlantic took a stake, a few months ago. T, Rowe Price did more recently.  I am not sure how much but chunks of the company are in the hands of the institutions already who are really looking to sell it to you. The big question is where it prices tomorrow. I also do recall  Blackstone went public near the top of the IPO market in 2007 at around $30, everyone cashed out and look where it is now.  I have this nagging feeling that Facebook will be the last hurrah of the IPO market for awhile.

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IPO’s in 2010

Six of the seven companies to go public this year are trading below their debut prices, and no one has high hopes that Anthera Pharmaceuticals, scheduled to go out tonight, will be any different. Read more here.