By Jack Hough
On Friday, ordinary investors can finally begin buying Facebook stock — as much as they like. They should do some quick comparison shopping first, however.
Facebook’s initial public offering priced the company at $104 billion — the most ever for a U.S. company at the time of its debut, reports The Wall Street Journal. But that value is based on the subscription price of $38 that was available only to a privileged few.
If shares open for trading at $50, the company is worth more than $136 billion. If they hit $75, either right away or in coming weeks, Facebook will top $200 billion in value. That would make it the seventh-largest American company, worth slightly more than General Electric (GE) and just less than Google (GOOG) and Wal-Mart (WMT).
Any purchase of shares buys an investor exposure to a company’s prosperity, measured by things like earnings, dividends and cash that can be put to use, as well as growth rates. Assume an investor can buy Facebook stock at $50 a share on Friday. At that price, a $1,000 purchase will buy exposure to about $12 in earnings, no dividends and close to $80 in cash on the the company’s balance sheet.
The cash includes money Facebook raised by selling shares to the public. The earnings assume that Facebook grows its earnings by 65% this year, just like it did last year. That’s a bullish assumption because in its first quarter Facebook reported an earnings decline versus a year earlier.
That same $1,000 can buy much more if it’s spent on some other thriving technology companies. With Google, it buys exposure to nearly $70 in projected 2012 earnings, no dividend and $243 in cash and investments. With Apple (AAPL), a $1,000 purchase of shares buys around $89 in projected earnings for its fiscal year ending September, along with $222 in cash and investments. There’s no dividend yet, but Apple will begin paying one this summer, so that $1,000 purchase will buy about $20 a year in dividends to start.
These companies aren’t done growing. The earnings estimate for Google suggests 20% growth this year. The one for Apple points to 70% growth.
In other words, investors can get five or six times as much for their money by buying shares of good companies that aren’t hitting the stock market for the first time Friday.
Facebook is a fine company with a seemingly bright future. The problem is that while it’s still a mid-sized company in terms of the money it makes, it’s a behemoth when measured by the price it will sell for. Investors who buy Friday shouldn’t assume they’re getting in early on the next big thing. (Those who did were the ones selling to the public during the offering.)
The right reason for an investor to buy Facebook stock is that he thinks it’s going to be an exciting trade and he has a little cash he doesn’t mind losing. If you’re one of those investors, bet small, have fun and take a profit if you see one.
But those who want to sock away their savings in something that’s likely to be more valuable years from today should stick with the likes of Google and Apple for now, and take another look at Facebook in a year or two when the excitement has worn off.