Advisers on FaceBook IPO: Yawn

But there are some backdoor plays that might make sense for clients

Apr 2, 2012 @ 4:07 pm

By Jeff Benjamin

As public stock offerings go, it appears that Facebook Inc. is about to hit an epic home run. But financial advisers are less pumped up than their clients.

According to an ongoing survey of financial advisers being conducted by InvestmentNews, few advisers are as enthusiastic about the Facebook IPO as their clients.

Sixty-five percent of the advisers surveyed said their clients are inquiring about investing in the Facebook IPO, but 80% of the respondents said they are not recommending the stock to their clients.

In terms of Facebook stock's ultimate performance, more than 55% of the advisers said they believe it will outperform Google, which has gained more than 660% since 2004.

“Right now, all the stars are lining up and it's going to be a very hot IPO at a time when the IPO market in general is already hot,” said Josef Schuster, chief executive of IPOX Capital Management LLC.

The stock sale is tentatively scheduled for the second week of May but pre-market activity has already pushed Facebook's market capitalization to more than $102 billion.

According to published reports, early trading is valuing the company at more than 100 times last year's earnings and 50 times its estimated earnings for next year.

The IPO is expected to raise more than $5 billion. By comparison, the 2004 Google IPO raised $1.9 billion when it went public at $85 a share. Google stock is now trading at nearly $650 a share.

Market watchers like Mr. Schuster say that the hype and momentum behind the Facebook IPO ultimately could push the company's valuation as high as $130 billion.

“It's a big brand name, there's a lot of pent-up demand in the IPO space, the appetite for risk is high, and these kinds of IPOs are typically underpriced,” he said.

Because only about 5% of the company's total shares are being offered at the IPO price, investors would be better off waiting until after the public offering to buy, Mr. Schuster said.

Unless you're a really big client at a major brokerage firm that can provide some shares at the IPO price, investors might have to resort to something like GSV Capital Corp. Ticker:(GSVC), Mr. Schuster said.

GSV is a closed-end fund that invests in venture capital-backed private companies and has some exposure to pre-IPO Facebook stock.

After the IPO, some registered funds will have exposure to the stock, including the First Trust U.S. IPO Fund Ticker:(FPX), an exchange-traded fund managed by Mr. Schuster.

The ETF invests in the top 100 IPOs and corporate spin-offs by market cap, and holds them for four years following the IPO.

Investors should also expect to find some Facebook exposure in the Global X Social Media Index ETF Ticker:(SOCL), which is pegged to social media investments.

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