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    Facebook IPO Carries Too Much Risk for Small Investors

    This story comes from the Yahoo! Contributor Network, where individuals publish their unique perspectives on some of the world’s most popular websites.
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    COMMENTARY | The Facebook IPO is likely going to result in the social media giant ending up with a market value in the $75 to $100 billion range, according to MSNBC.com.

    Of course, the hyped of valuation is not Facebook's fault. Still lots of folks are likely to hit the "like" button on their portfolio to own a piece of the company, and as far as brand recognition goes Facebook is pretty strong, but that does not make it a good investment.

    Facebook is a solid company that made $1 billion profit last year, according to the Associated Press, which means the company could trade at levels from 75 to 100 times earnings if estimates are right. The AP report is even loaded with statements from investment people that are unsure on the stock, which probably means the average investor should stay away from the IPO.

    Facebook has more challenges ahead because the landscape of the company changes along with going public. Profits are going to matter to investors, and all those sudden changes that cause headaches for the more than 800 million Facebook users could show up in the stock price. The competition has also changed, because now the company now has a big social network rival in Google Plus. In addition, it is not like Facebook management has a ton of experience guiding a multibillion company.

    However, perhaps the biggest changes that lie ahead for Facebook are in corporate structure. As Mashable reports, the IPO filing included a letter from Mark Zuckerberg that outlined the company's position and outlook, which is all fine and good. However, the bottom line is that Facebook is going to have figure out how to get more money out of the 800 million users in order to keep that $100 billion valuation.

    Like any IPO, Facebook's carries a certain amount of risk with the potential for a nice reward, but until the answers to some of the questions are figured out, the risk is just too heavy.

     

    2 comments

    • Thomas  •  3 mths ago
      I have to disagree with the author on this article. Buy a couple shares of the stock and sit on them for a few years and like Google let it stablize and then cash em out. Obviously whoever wrote this article is a misinformed investor. Unfortunately since I am out of work I have no money to really buy any stocks or much of anything till I find a job and by then the stock will have lost most of its fizzle and I will just move on to the next big thing. That is how the stock market has always been and always will be. Today it is Facebook and tomorrow it maybe something else. I find by not paying too much attention to articles like this I feel I can sleep better at night. However, that being said, I will wait it out to see if this being a publicly traded company now, will make things better or worse with my profile on there. I been on there since 2007, and I can say that it has been a fun time on there. I do think however that the creator of the company should give a share to all of us on there just for patronizing and making the company for what it is today, but that being said, from what I understand he has an iron grip on the company tells me Facebook like all tech companies, once they grow and mature are never the same and the people running things it goes good for awhile and then eventually once the dazzle wears off, the truth comes out. I really do think Wallstreet is a bad example of how a company once it goes on the exchange is like selling your soul to the devil for money and materialistic things. I will sit this one out and wait about 5 years to see if the stock has matured or not. I do not buy into the hype anymore. However, if the company starts doing what it wants, and makes it impossible for me to use my creative energies like it has allowed me to do, then I am going to have to leave em and thank them for the memories. That is all I have to say.
      • 2012 3 mths ago
        GOOD POST TOM, GOOD LUCK IN JOB SEARCH. . .
    • Exiled in the Caribbean  •  3 mths ago
      I am out of Facebook. They are not going to make a profit of me without me.
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