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Friday, May 18, 2012

Facebook Friends NASDAQ

Today is the day, of the years most anticipated IPO. Facebook, or FB of the NASDAQ, goes public at 11:00 am eastern time. The speculation of FB stock has analysts and investors in a confused frenzy. Facebook is a new bread of corporation, a hybrid model with multiple product offerings and consumer engagement tactics. That is redefining the appraisal method for publicly traded companies.  Facebook is scheduled for an initial opening of $104 billion dollars; approximately 26 times the companies reported earnings.

A common stock valuation method is the the price to earning ratio, in which the price of a single stock is compared to the relative net income or profit per share. A company like Apple, AAPL, who has large cash holdings and annual revenues of $108 billion dollars has a P/E ration on 12.9%  half of the anticipated P/E ratio of Facebook. Likewise ford a real manufacturing company has a P/E of 2.1. Facebook's stock valuation is based on a forward appraisal. The company has no tangible product.

I'm torn in my opinion of the valuation of FB stock. Everthing about the company's IPO flashes red warning lights of danger. Facebook is a large marketable and marketing brand however the initial infatuation with social media in the western world is cooling off as newer, cooler, and less authority monitored sites pop up. Facebook may be the brand of a revolution, the Bolshevik's 2.0; however in the face of a revolution it is important to heed the waring of George Orwell and Animal Farm: "All animals are equal, but some are more equal than others."

From a behavioral financial analysis, I believe that Facebook stock will increase rapidly as the internets  most  recognizable brand behind google. I believe that the high profile of the company will trigger a bubble type valuation of the stock that could present long run concerns for our global economy. Facebook is a stock to buy and sell quickly, based on a behavioral finical analysis. However, in accordance to traditional financial analysis Facebook is a stock to pass on.

There will be huge money made by early FB investors; just as there will be a new bread of young multi billionaires reaping the rewards of successful and innovative company branding. I personally would not risk investing in Facebook. I believe that company is structured in a manner that could make it the AOL of 2012.

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