While investors around the world scramble to get a piece of the Facebook IPO, some analysts are suggesting that those interested in acquiring a piece of the social media giant should probably wait until prices normalize, potentially weeks after the transaction. Facebook is expected to raise $16 billion in its IPO, selling 421 million shares between $34 and $38 per share.
Despite the suggestion of some analysts that the stock may hit $50 by the end of the first trading day, others encourage investors to wait, based on the historical record of technology IPOs and their trading patterns. Demand Media Inc (NYSE:DMD) saw a 33% increase in the first trading day after its IPO, only to have the stock retreat 49% over the coming six month period.
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While it’s true that some firms lose value soon after the initial excitement, the IPO price is sometimes still good value in the long run. Linkedin Corporation (NYSE:LNKD) fell soon after its IPO, losing 33% in the first month. However, the stock has since recovered and is up 17% from its initial IPO price. While better buying opportunities may present themselves later on, the IPO is the only sure-fire way to acquire a piece of Facebook on your own terms.
Some analysts are also suggesting that Facebook’s current investor base is looking to dump their shares before potential tax increases in 2013 impact their investment returns. Stock holdings of existing investors cannot be traded for 181 days from the date of the IPO, meaning no current holders could liquidate their position and realize their gains for tax purposes until mid-November. This still allows some time for delay, though pushing the IPO beyond July could cost Zuckerberg and his existing partners millions in additional taxes.
Eduardo Saverin, one of the initial founders of Facebook, has taken the avoidance of additional taxes to another level, stating recently that he will be renouncing his U.S. citizenship. This would force Saverin to realize capital gains at the date at which he ceases to be an American, avoiding taxes on any further appreciation of his Facebook holdings. Saverin is Brazilian and currently is a resident of low-tax Singapore, where he is working on venture capital opportunities.