The Trouble with Facebook

February 10, 2012

Talk of Facebook dominated the news cycle for a few days last week. Rightly so too, because the Silicon Valley-based company filed the paperwork for its initial public offering with the SEC. The social networking megalith chose a ticker symbol–FB–and has underwriters, but didn’t state how many shares it planned to offer, what exchange it would trade on, the intended share price or even what date it would launch the IPO. So all we know right now is a Facebook (FB) IPO will happen at some point in the future.

While the financial media spent the first few days of February debating the relative merits of Facebook and making wild predictions about valuations in the $75 billion to $100 billion range, I found myself wondering what type of investor would put money into a Facebook IPO and why. This of course led to a bit of an internal debate on why Facebook is or isn’t a good investment, but I’ll get back to that.

My initial thought on the Facebook investor led down two pathways–growth and value. Growth investors could like Facebook if the stock sees a prolonged upswing after the initial IPO, thus allowing them to sell higher in the not-too-distant future. Should Facebook shares go the other way and remain undervalued for a time after their IPO, then value investors would someday show more interest. The value investor, of course, is someone like Warren Buffet who purchases a stock and holds it for a long time.

Read the rest in today’s Cabot Wealth Advisory.

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