Daily Profit : IPO

Facebook IPO Aims for Record Deal

Ian Wyatt — Tue, 08 May 2012 13:42:00 GMT

We already knew the Facebook IPO was going to be big. Now we know how big – or at least how big Mark Zuckerberg and company want it to be.

The social network giant announced today that it is targeting a $96 billion deal in its much-anticipated initial public offering on May 18. If it succeeds, that would be the richest debut ever for a U.S. stock.

Facebook’s goal is ambitious, to say the least. For starters, a $96 billion valuation would be 96 times the $1 billion in earnings the company reported in 2011. It would also more than quadruple the $23 billion valuation Google (Nasdaq: GOOG) achieved in its 2004 IPO – the gold standard of tech IPOs.

In fact, a $96 billion valuation out of the gates would be 60% higher than the current record of $60.2 billion, established by UPS (NYSE: UPS) in 1999. And Facebook is only eight years old. The United Parcel Service had been in existence for 92 years when it went public.

To get to a $96 billion market cap, the Facebook IPO is expected to sell 337 million shares at a price between $28 and $35 a share. If the stock prices at the low end of that range, Facebook’s initial valuation would “only” be $77 billion – still a record and still 77 times earnings.

If Facebook raises the $13.6 billion analysts are expecting from its IPO, that would trail only Visa (NYSE: V) and General Motors (NYSE: GM) for the most money raised in a U.S. IPO.

Editor's note: I'm finishing up research on Facebook's IPO as well as two others coming up this year. The report details how to maximize returns from IPOs and the pitfalls to avoid. I expect to release it in the next couple of weeks before the Facebook IPO. So keep reading my column and I'll let you know when it's available.

So it’s safe to say the Facebook IPO is in a league of its own.

Tech Stocks That Will Benefit from Online Ad Sales Overtaking Print

Ian Wyatt — Tue, 24 Jan 2012 21:09:00 GMT

Good news recently surfaced for tech stocks like Google (Nasdaq: GOOG), Yahoo! (Nasdaq: YHOO) and Microsoft (Nasdaq: MSFT).

For the first time ever, online ad sales are expected to outpace print sales in 2012, according to an eMarketer study. Online advertising is expected to generate $39.5 billion in sales this year, while print ads are expected to fall to $33.8 billion.

Not that people didn’t see this coming. The Internet has been steadily replacing newspapers and magazines as the place where the biggest companies run their ads. As a former newspaper reporter, I’m a little saddened by the news. Print media has been dying a slow death. This just further confirms it.

But it’s good news for websites like this one, and better news for some of the online sales leaders. Google, Yahoo and Microsoft are the top dogs among publicly traded Internet companies. AOL (NYSE: AOL) and Marchex (Nasdaq: MCHX), a leader in mobile ad sales, are other tech stocks that rely heavily on online ad sales.

But the company that stands to benefit most from the projected online sales increase has yet to go public. With an estimated $2.2 billion in advertising revenue last year, Facebook has become the new leader in online sales revenue, with a 17.7% share of the market. The company is expected to go public the third week of May in one of the most eagerly anticipated IPOs in recent memories. The latest news will only add to the anticipation.

Yahoo and Google are Nos. 2 and 3 in online sales, respectively. But Google is expected to be the fastest-growing company in display ad revenues in 2012.

Further down the road, eMarketer expects online ad sales to grow 17.7% in 2013 and 13.5% in 2014. That bodes well for the long-term future of some of the leading tech stocks.

Pandora IPO: Is it worth it?

Ian Wyatt — Thu, 16 Jun 2011 13:36:00 GMT

The Pandora IPO (NYSE:P) started trading on Tuesday at $20/share, higher than the originally projected figure of $16/share. We saw an immediate 63% jump in the share price to $26 a share; this puts Pandora’s value at $4.2 billion. By all accounts, Pandora had a successful IPO and the hype around the opportunity to buy Pandora (NYSE:P) shares remains. However, a harder look begs the questions, is it worth it?

Pandora offers its users an interactive radio experience either, for free while serving up ads or without ads at $36/year. Nevertheless, there is growing competition in this space from providers like Google and Amazon; both have recently launched cloud music services. Of course, Apple is not to be out done and has recently announced plans to create iCloud access to iTunes.

As user numbers grow in the online music space, data usage will increase. These services all rely on data streaming to the end users devices. With the age of data caps and fees for data overages upon us, Pandora’s model may not prove the most resilient.

With growing competition from Google (NASDAQ:GOOG), Amazon (NASDAQ:AMZN) and Apple (NASDAQ:APPL), as well as projected losses through 2012, one should take pause. Pandora has yet to turn a profit and has shown a loss of $6.8 million on revenue of $51 million in Q1 of 2011. Not to mention the growing demand for bandwidth which will lead to a crackdown on data usage in the not to distant future.

Why then are so many investors lining up to purchase shares of the Pandora IPO? I think Tony Wible, analyst at Janney Capital Markets put it best: "There is scarcity value in social media IPOs, which is why many are getting fairly lofty valuation multiples," said Wible, "These companies are making money from momentum and not fundamentals, at least initially."

The Fed Fires Back

Ian Wyatt — Fri, 19 Nov 2010 18:40:00 GMT

November 19, 2010

*****The Market Feels Heavy
*****Silver Eagle
*****The Fed Fires Back

Fellow Investor,

The good vibes from the GM IPO and the bailout potential for Ireland took the S&P 500 back above support/resistance at 1,192. We'll see how long the good vibes last.

Despite yesterday's strong move, the stock market still feels "heavy" to me. That's not to say I think a big decline is imminent. But the way higher is going to be a slow grind, unless we get some data to sway the mood.

We are on the verge of the holiday season. It's hard to believe Thanksgiving is next week! People tend to get a bit more cheerful during the holidays and that can seep into the stock market. That might sound simplistic, but never forget that while fundamentals may win out in the end, emotions rule the stock market in the short- and medium-term.

As an aside, all of the brick and mortar retailers I recommended on November 8 as holiday shopping trades are higher.

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*****Fed Chief Ben Bernanke spoke in Frankfurt, Germany this morning. In addition to blasting China for currency manipulation, Bernanke also dropped these two nuggets:

“On its current economic trajectory the United States runs the risk of seeing millions of workers unemployed or underemployed for many years...As a society, we should find that outcome unacceptable.”

And...

"A fiscal program that combines near-term measures to enhance growth with strong confidence-inducing steps to reduce longer-term structural (budget) deficits would be an important complement to the policies of the Federal Reserve..."

On the topic of unemployment, Bernanke is right on target. Unemployment is not going to improve substantially. Many of the jobs created in the 2004-2006 timeframe were "bubble" jobs. They came as a result of unsustainable demand from the housing bubble.

I have to applaud Bernanke for stating that such high levels of unemployment are unacceptable.

Also, please do not overlook Bernanke's challenge to Congress. He is saying in no uncertain terms that Congress needs to get moving on creating conditions and policy consistent with job growth.

Good for him. Unemployment remains the economy's greatest challenge. Yet Congress has done little to address unemployment.

*****Banks are set to undergo another stress test to determine if they are fit enough to start paying dividends. This is a very important issue for banks, and we've already seen Bank of America (NYSE:BAC) sell assets, presumably to shore up its balance sheet ahead of these stress tests.

Banks may also start to sell some of their "toxic" assets.

Bond fund giant PIMCO is betting they will. It's currently raised $1 billion to but toxic bank assets. And with banks now looking to be dividend-worthy, they may have added incentive to sell.

You may recall the Treasury's TARP (Troubled Asset Relief Program) program, designed to remove these toxic assets from balance sheets was mostly a failure, because banks didn't want to sell at a loss. Banks believed then, and may still, that these assets would eventually regain much of their value as the economy improved.

And the fact that PIMCO may want to buy them will only encourage the banks to hold.

*****China is once again raising bank reserve requirements to get money out of circulation and combat inflation. Oil prices are always very sensitive to China's policy.

Too bad Chinese officials don't ask Ben Bernanke how they might slow inflation. I bet he'd have some ideas...

*****Cisco (Nasdaq:CISCO) is adding $10 billion to its share buyback program. That's the only source of growth the company has right now. How the mighty have fallen...

The weakness in Cisco's business has investors asking if tech stocks are broken. I can answer that question: No, tech stocks are far from broken. In fact, business is booming for many technology companies. And valuations are still attractive.

*****Please feel free to write me with your questions and comments. I'll probably print them in Daily Profit: ianwyatt@wyattresearch.com

Until Monday,

Ian Wyatt
Editor
Daily Profit

AIG and GM Payback Plans Doomed to Fail?

Ian Wyatt — Thu, 30 Sep 2010 19:35:00 GMT

AIG (NYSE:AIG) agreed to convert preferred shares given to the U.S. Treasury in exchange for bailout money into common stock that can be sold on the open market. The Treasury owns $49 billion in AIG preferred stock. The exchange will leave the Treasury with 1.66 billion shares of AIG common stock.

For the Treasury to recoup its bailout money, it must be able to sell the AIG stock at an average price of approximately $29 a share.

AIG is currently valued at $25 billion, so the potential hazard to the Treasury's plan is clear: how does one get $49 billion out of a company that's currently worth $25 billion? The follow on question is: why would investors buy AIG shares while the government's AIG stock sale could last 18-24 months?

The U.S. government may encounter similar difficulty as it tries to recoup its loans to General Motors, through its initial public offering planned for sometime in November. It's reported that, in order to recover its $45 billion from GM, the Treasury will need to sell its stock for $133.78 a share. That sale price may be unrealistic.

There's still an even bigger issue for the American taxpayer that's not being addressed. The U.S. government has had to sell record amounts of Treasury bonds to cover its obligations to companies like AIG and GM. That's pushed the federal deficit to all time highs, crushed the U.S. dollar, and left the government unable to address current problems like high unemployment or budget shortfalls in certain states.

In other words, who's paying the taxpayer back for the risk and continued fallout from the bailouts?

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