* 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 (Reuters) - 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 Century.”
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 offering.
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 Zuckerberg.
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 on Friday.
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?”