How Does Facebook Measure Up to Other “Hot IPOs”?

As news of Facebook's IPO remains a top headline in financial news, investors should compare the company's initial offering to other major IPOs that have generated similar hype. Facebook filed for its IPO in February 2012, and plans to sell $5 billion in shares at an average price around $30. The company expects to debut with a market cap of $100 billion, coming in at the same size as McDonald's and at half the size of Google. However, shares will be trading at 100 times trailing earnings, which has raised the skeptical eyebrows of many investors.
Let's take a look at some similarly priced Internet IPOs and see how Facebook measures up technically.

Google (GOOG)

Google, the world's largest search engine, went public in August 2004, selling 19.6 million shares at $85 per share. The sale raised $1.67 billion in cash and instantly gave Google a market capitalization of $23 billion, starting its trailing P/E at 67.5. Shares started trading at $100 and gained 8% the first day, then gradually soared to an all-time high north of $700 by 2007. In 2012, shares have been rock solid, and the company has grown comfortably into its $200 billion valuation, trading with a comparatively cheap forward P/E of 20. Google's success is considered an industry benchmark in measuring an Internet IPO's future prospects.

Zynga (ZNGA)

Social game maker Zynga, which is the source of 12% of Facebook's revenue, wasn't so fortunate. Its IPO was priced at $10 per share, which gave the company an initial valuation of $7 billion - or 77 times trailing earnings. Over the next four months, shares gradually rose, but not before dropping to under $8 a share and shaking out some nervous initial investors. The company then failed to reassure investors in its first reporting quarter, posting a 50% decline in profits due to higher expenses. This caused analysts to peg the company's fair value at a mere $6 to $7 per share.

Groupon (GRPN)

Groupon, the group coupon bidding site, was thrust into the media spotlight after turning down a $6 billion buyout offer from Google. Even after an initial SEC criticism of
Published on Feb 15, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2020. Content published with author's permission.

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