As Facebook gets pricier, some pros skip IPO

Facebook raised its target share price for its IPO amid strong demand. But some professional investors see warning signs and have decided to skip.

Kai Ryssdal: Let's stipulate a couple of things about the looming Facebook IPO, all right? One, there's a whole lot of hype going on here -- witness pretty much every news source you'll see or hear this week. Two, it's going to be crazy popular and not as cheap as we thought. There's so much demand from investors that the asking price has already gone up to somewhere between $34-$38 a share. Used to be $28-$35, you may recall. And three, what's all the fuss about?

Our New York bureau chief Heidi Moore reports on the Facebook skeptics.


Heidi Moore: Jason Raznick is a co-founder of Benzinga.com, a website that analyzes stocks. He's also a veteran investor who manages money with some friends. He has decided to sit out the Facebook IPO -- to their chagrin.

Jason Raznick: So I have this investment group, um, and they're kind of mad at me.

But Raznick is sticking to his guns. He likes Facebook, but he thinks the company has an inflated sense of its own worth.

Raznick: At $100 billion, you're talking about a very high valuation for Facebook.

At that price, Facebook would set a record for a company going public. Google was worth $23 billion on its IPO day. UPS, the current record holder, was worth $60 billion. Raznick sees other reasons to think Facebook is overpriced. The company's first-quarter profit fell and he doubts Mark Zuckerberg, the hoodie-wearing CEO, will satisfy Wall Street's thirst for profit.

Raznick: He's going to run it more like a company where profit isn't the number one thing, it's going to be making the product the number one thing.

Oliver Pursche is the CEO of Gary Goldberg Financial Services. He refuses to even look at Facebook's stock until a few days after the offering.

Oliver Pursche: Yeah, it's going to be a madhouse for the first couple of days and in particular on Friday. That's not unusual. That's why you want to kind of take a step back and wait.

Kate Warne also wants investors to be careful. She's an investment strategist for Edward Jones, the brokerage.

Kate Warne: If you're thinking about buying the shares, make sure you're not just being overwhelmed by the excitement you have using the product because you need to think about whether the stock's going to go up, not based on the excitement.

That's why Raznick, at Benzinga, says facing his investment group's anger is worth it.

Raznick: It's dangerous when you get into these things because everyone wants to get rich quick. And you think, "Hey, this is Facebook. If I can get it first..." you think you're going to get a big home run. I don't think that's how it's going to be -- and it hasn't been, in the last six months, with these tech IPOs.

Remember Groupon? Big buzz may be exciting, but it's not a great way to make a profit.

In New York, I'm Heidi Moore for Marketplace.

About the author

Heidi N. Moore is The Guardian's U.S. finance and economics editor. She was formerly the New York bureau chief and Wall Street correspondent for Marketplace.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...