* Facebook shares begin trading on Nasdaq on Friday
* Retail investors ignore warnings from wealth managers
* Expert sees up to 30 pct jump on debut, urges caution
By Alistair Barr and Olivia Oran
SAN FRANCISCO, May 16 If "Facebook For Dummies"
helped you find friends and post pictures on the world's No. 1
online social network, then consider "Facebook IPO Confidential"
which purports to teach you "How To Get Rich With The IPO Of The
The e-book is one of about eight self-help manuals that
appear to have sprung up overnight to try to capitalize on the
frenzy surrounding Silicon Valley's biggest initial public
With other titles such as "The Facebook IPO Pitch: Are You
In?" and "How To Invest In Facebook", these books are far from
bestsellers. But, along with countless online forums and news
articles about the IPO, they underscore the desire of ordinary
people - many of whom have never invested in stocks before - to
get in on the $15.2 billion share sale.
"If you can't invent Facebook, the next best bragging rights
would be to say that you had invested in the social media phenom
when it was a dorm room project. If not then, perhaps the IPO,"
Nancy Miller wrote in a guide titled "The Facebook IPO Primer."
Many wealth managers are advising their clients to avoid
Facebook, pointing to a sky-high valuation of up to $104 billion
set by the IPO, and potentially much higher once it starts
trading. The company also shows signs of slowing growth, has yet
to figure out how to make money on mobile, and new shareholders
will have little influence as nearly 56 percent of voting shares
will be in the hands of one person: Chief Executive Mark
But such warnings are falling on deaf ears as many people
are drawn in by Facebook's brand name and the fact that one in
seven people around the globe are on the social network.
Facebook Inc on Tuesday increased the size of its IPO by
nearly 25 percent and raised the target price range.
"I can't remember another IPO that got this much attention,"
said Max Wolff, a senior analyst at GreenCrest Capital. "Half
the people talking about the Facebook IPO probably don't know
what IPO stands for."
The strong demand means that most retail investors will have
to wait until Facebook begins to trade on the Nasdaq on Friday
to get hold of the shares - and risk getting trampled. If the
stock skyrockets, the average person might end up getting orders
filled at a price much higher than they wanted and then face the
possibility of losses as funds steamroll in and then zip back
out, taking the price off its highs.
"I don't know if buying on the day of the IPO is the best
idea, but I like the novelty factor of it and being able to say
that you bought on the first day," said Micah Stubbs, a
first-time investor who works in the oil and gas industry and
lives in Bartlesville, Oklahoma.
Facebook's share price could surge 30 percent on debut day,
said Reena Aggarwal, a professor of business administration and
finance at Georgetown University's McDonough School of Business
in Washington. She suggested retail investors may be better off
holding off for a few weeks until the share price settles.
"The market will try to figure out the right price for the
stock and it's going to open really high," Aggarwal said. "There
are lots of risks - the company is high growth but also high
risk, and there is a lot of uncertainty, so retail investors
have to be careful."
Facebook is going public after accumulating almost a billion
users, nearly $4 billion in annual revenue and a brand name
augmented by the 2010 Oscar-winning film "The Social Network",
which charted the rise of Zuckerberg who started Facebook in his
Harvard University dorm room.
Most ordinary people have only the slimmest of chances of
getting hold of IPO shares as Facebook's 33 underwriters, led by
Morgan Stanley, JPMorgan and Goldman Sachs
, are expected to give priority to their most important
clients, usually institutional investors.
Typically, only 5 to 30 percent of IPO shares are set aside
for retail investors, underwriters say.
Discount broker E*Trade Financial, which was added
to the list of IPO underwriters at the last minute, offers some
help. Last week, its home page threw up a pop-up box explaining
what investors need to do to get in on IPOs.
Would-be buyers have to answer about 25 questions about
their financial status and investment habits. They are then
prompted to place a conditional offer for at least 50 Facebook
shares and a maximum price they are willing to pay per share.
Online prediction market Intrade, which lets investors bet
on major events such as the U.S. presidential election, offers
another alternative. It started a contract on Tuesday for bets
on where shares of the social network will close on their first
day of trading.
Facebook reported $205 million in first-quarter profit, down
12 percent from the same period a year ago. While sales leapt 45
percent year-on-year to $1.6 billion, that lagged the 55 percent
growth of the fourth quarter.
On Tuesday, General Motors Co said it will stop
advertising on Facebook, amid concerns that the ads have had
little impact on consumer spending. The auto maker continues to
use Facebook pages for marketing its vehicles, but the news
underscored the risks Facebook faces as it tries to boost
revenue from its huge user base.
RegentAtlantic Capital is among the wealth managers
recommending clients stay away, without much success.
"Most clients or their children have some interaction with
Facebook, so I believe the demand will be high," RegentAtlantic
wealth advisor Chris Cordaro said, warning that there could be
"a lot of pain" ahead for investors who buy at inflated prices
Because of such concerns, some retail investors plan to get
in and get out of the stock quickly. That may be fine if they
get in at the IPO price but if they end up buying once the
shares have started trading up, they may not be so lucky.
"Retail participation is associated with more speculation
and noise, and because of that there is more volatility," said
David Sraer, a professor of economics at Princeton University.
"They tend to herd together and be on the same side of the
market, which drives imbalance."
Retired chemical engineer Alvan Sweet ordered through Schwab
10,000 Facebook shares worth $380,000 at the high end of the
indicative IPO price range. If he is lucky enough to get an
allocation, he plans to dump the shares on day one or two.
Sweet, whose son is a senior managing partner of the IPO
Boutique advisory firm, has invested in IPOs before but says
this is the first time friends in his Florida condo community
have pestered him about getting shares. "They were hoping that
because my son is in the business I would have access," he said.
One of his friends, Lucky Bloch, admits to losing money on
an IPO before. But he is confident this investment will pay off.
"Initially Over-Priced is what IPO should stand for," he
complained. "If you can get in before the first day, then sell a
couple of days later, there's money to be made," he told
Reuters. "Can you help me get shares?"