Canadian Facebook fans unlikely to scoop up shares

Canadian Facebook fans may share everything from pictures of their meals to engagement announcements on the social networking site, but they’re unlikely to get in on its hotly-anticipated initial public stock offering.

Canadian Facebook fans may share everything from pictures of their meals to engagement announcements on the social networking site, but they’re unlikely to get in on its hotly-anticipated initial public stock offering.

Scooping up shares is an exclusive privilege when any big-name company first goes public — and given the hype surrounding Facebook Inc.’s public launch, it’s going to be even more difficult for average investors to get their hands on the offerings at the initial price.

And to make matters more frustrating for Canadians, the company’s underwriters — those responsible for doling out the limited number of shares — Morgan Stanley, JPMorgan Chase and Goldman Sachs, grant access only to the biggest of Canadian players. There are few Canadians or Canadian firms wealthy enough to have an account at the American investment behemoths.

The company said in its sprawling 200-page prospectus, filed Wednesday with the U.S. Securities and Exchange Commission, that it plans to raise an initial $5 billion — the most for an Internet IPO since Google Inc. raised $1.9 billion in 2004.

The entire California company could be valued at US$100 billion or even more, depending on the market reaction to its stock sale.

Facebook did not indicate an initial offering price, which will be determined by underwriters depending on the level of interest, but it has been estimated at between $30 to $35 per share.

That leaves about 167 million shares in circulation, which scarcely covers intense demand for the world’s biggest social networking website.

“They’re only going to give it to their biggest, best client and even they’re going to get very, very small amounts,” said John O’Connell, CEO at Toronto-based money manager Davis Rea.

Investment advisers, who usually receive fewer shares than they want of a stock that’s in high demand, distribute those shares among their clients.

By the time Facebook shares actually hit the public stock market, in about three months, the price is expected to at least have doubled from the initial asking price — causing even more investors to want to jump on board.

“Nobody’s going to get everything that they want, so some people will decide to flip it for a quick profit and some will decide to buy more,” O’Connell explained.

Investors need to look beyond the hype and focus on whether the company’s books justify its valuation.

O’Connell warns that traders have lost a lot of money by buying into similarly hyped public offerings that inflate stock prices at companies that later tanked.

“It’s amazing that so many people want to buy this thing and they don’t know anything about the company’s financials — that says a lot about investors’ thought processes.”

“Some of these stocks change at huge, huge premiums initially and oftentimes they tend to drift lower over time because investors start taking a very sober second look at what the business is all about.”

The regulatory filings showed what analysts have long suspected — that Facebook is very profitable and growing. The company Mark Zuckerberg started in a Harvard dorm in 2004 has seen its annual revenue soar from $777 million in 2009 to $3.7 billion last year. Facebook’s earnings have grown at a similar rate too, ballooning from $122 million in 2009 to $668 million last year.

Facebook ended 2011 with $3.9 billion in cash. That’s a relatively small amount compared to the nearly $45 billion that Google has in the bank and peanuts compared to Apple’s nearly $100-billion stockpile.

Facebook ended last year with 845 million users, up 39 per cent from 608 million at the end of 2010. The company generates about $4.39 in revenue per user.

Facebook is just the latest tech company to make an eagerly awaited IPO in the last year.

The early crop has included Internet radio service Pandora Media Inc., professional networking service LinkedIn Corp. and daily deals company Groupon Inc. Most of those Internet IPOs haven’t lived up to their lofty expectations. The list of disappointments includes Zynga Inc., which has built a profitable business by creating a variety of games to play on Facebook. Zynga’s stock fell five per cent below its IPO price on the first day of trading.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Alberta’s chief medical officer of health, Dr. Deena Hinshaw, confirmed eight additional virus-deaths Monday afternoon including one in central zone. (Photo by Chris Schwarz/Government of Alberta)
New record: Red Deer at 236 active COVID cases

One more death in central zone reported

The City of Red Deer is still repaying two loans for the Sorensen Station parkade, which are contributing to a deficit in the parking revenue fund. (Advocate staff)
Dropping parking revenues in Red Deer are creating a deficit

Loan repayments for the cost of the parkade are straining reserves

Red Deer firefighters look for coloured tags on downtown fire hydrants to determine water pressure levels before connecting their hoses to fight blazes, such as this fire at a low-income housing complex last summer. (Advocate file photo.)
Tagged fire hydrants are some of the City of Red Deer’s new innovations

New ideas are being generated to improve services or save money: general-manager

RCMP. (Phil McLachlan - Black Press Media)
‘Fake’ police officers demand money, Red Deer RCMP warn of scam

Red Deer RCMP are warning the public of a concerning incident where… Continue reading

The sit-down area of Red Deer's Tim Hortons at 3020 22nd St. was closed to the public on Monday because of an "evolving health situation." The drive-through was open and remained busy.
Photo by PAUL COWLEY/Advocate staff
Red Deer Tim Hortons restaurant dining room closed due to “evolving health situation”

Drive-through at Tim Hortons in southeast Red Deer remained open

Idyllic winter scenes are part of the atmosphere of the holiday season, and are depicted in many seasonal movies. How much do you know about holiday movies? Put your knowledge to the test. (Pixabay.com)
QUIZ: Test your knowledge of holiday movies and television specials

The festive season is a time for relaxing and enjoying some seasonal favourites

Downtown Iqaluit, Nunavut, is shown after 2 p.m. sunset on November 24, 2020. The territory plans to start lifting a two-week lockdown due to COVID-19 spread on Wednesday. THE CANADIAN PRESS/Emma Tranter
Nunavut to start lifting its two-week lockdown as COVID-19 cases recover

Nunavut to start lifting its two-week lockdown as COVID-19 cases recover

A health care worker direct a person to use a swab for a self administered test at the Miami-Dade County Youth Fairgrounds at Tamiami Park, on Sunday, Nov. 29, 2020 in Miami. (David Santiago/Miami Herald via AP)
Americans face new COVID-19 restrictions after Thanksgiving

Americans face new COVID-19 restrictions after Thanksgiving

FILE - In this Sept. 23, 2020, file photo White House coronavirus adviser Dr. Scott Atlas speaks during a news conference in the James Brady Press Briefing Room of the White House in Washington. (AP Photo/Evan Vucci, File)
Trump science adviser Scott Atlas leaving White House job

Trump science adviser Scott Atlas leaving White House job

Maimonides Geriatric Centre is shown in Montreal, Sunday, November 29, 2020, as the COVID-19 pandemic continues in Canada and around the world. THE CANADIAN PRESS/Graham Hughes
Ottawa extends rules and restrictions for travellers amid rising COVID-19 case counts

Ottawa extends rules and restrictions for travellers amid rising COVID-19 case counts

A restricted gun licence holder holds a AR-15 at his home in Langley, B.C. on May 1, 2020. Advocates of stricter gun control are urging the Trudeau government to get on with promised reforms, saying they are months overdue. Public Safety Minister Bill Blair has pledged new measures including a buyback of recently outlawed firearms, stricter storage provisions and steps to control handguns. THE CANADIAN PRESS/Jonathan Hayward
Get on with promised gun-control measures, advocates urge Trudeau government

Get on with promised gun-control measures, advocates urge Trudeau government

Police are seen near a damaged van in Toronto after a van mounted a sidewalk crashing into a number of pedestrians on Monday, April 23, 2018. Dr. Alexander Westphal is expected to testify that Alek Minassian is not criminally responsible for his actions on April 23, 2018, due to autism spectrum disorder. Minassian has pleaded not guilty to 10 counts of first-degree murder and 16 of attempted murder. THE CANADIAN PRESS/Aaron Vincent Elkaim
Alek Minassian was never aggressive to others before van attack, court hears

Alek Minassian was never aggressive to others before van attack, court hears

Deputy Prime Minister and Minister of Finance Chrystia Freeland listens to a question from a reporter on the phone during a news conference in Ottawa, Monday, Nov. 30, 2020. THE CANADIAN PRESS/Adrian Wyld
Spending too little worse than spending too much, Freeland says in fall update

Spending too little worse than spending too much, Freeland says in fall update

Ontario Premier Doug Ford puts his mask back on during the daily briefing at Humber River Hospital in Toronto on Tuesday November 24, 2020. Ford says he wants a clear delivery date for the province's share of COVID-19 vaccines, stressing that "the clock is ticking" when it comes to fighting the novel coronavirus. THE CANADIAN PRESS/Frank Gunn
Ottawa must be more transparent regarding COVID-19 vaccine rollout: expert

Ottawa must be more transparent regarding COVID-19 vaccine rollout: expert

Most Read