I am a small retail investor. Can I invest in the Facebook IPO at the IPO price? [duplicate]
"I have an account with ETrade. Earlier this week I got an offer to participate in the IPO proper (at the IPO price). If Charles Schwab doesn't give you the opportunity, that's a shortcoming of them as a brokerage firm; there are definitely ways for retail investors to invest in it, wise investment or no. (Okay, technically it wasn't an offer to participate, it was a notice that participation was possibly available, various securities-law disclaimers etc withstanding. ""This Web site is neither an offer to sell nor a solicitation to buy these securities. The offer is by prospectus only. This Web site contains a preliminary prospectus for each offering."" etc etc)."
"There are two kinds of engagements in an IPO. The traditional kind where the Banks assume the risks of unsold shares. Money coming out of their pockets to hold shares no one wants. That is the main risk. No one buying the stock that the bank is holding.  Secondly, there is a ""best efforts"" engagement. This means that bank will put forth its best effort to sell the shares, but will not be on the hook if any don't sell. This is used for small cap / risky companies.  Source: Author/investment banker" like any share, valuing facebook requires a projection of earnings and earnings growth to arrive at a present value for the right to share in these future earnings.   there are economic arguments to be had for facebook to see either a negative or positive future long term net income growth. given the uncertainty we can establish a very rough baseline value by treating it as a perpetuity (zero growth) discounted at historical equity growth rate (8%) with some very simple math. An annual net income of 900 million discounted at 8 percent in perpetuity is worth 11.25 Billion.  Now, take into account the fact that tech stocks trade at an inflated PE multiple of around 3 times that of a mature company in an established industry (PE x10-20 for average stocks and anywhere between x30-60+ for tech stocks), and I would expect the market cap for this perpetuity to be around 34 Billion.  A market cap of 34 billion is a share value of around 15.5, which is the point where I would take up a long position with fair confidence. I do think that the share deserves a premium for potential income growth (despite the current and potential future revenue losses) simply due to the incredibly large user base and the potential to monetize this. Of course, it wasn't worth the 22 dollar premium that IPO buyers paid but its worth something.  I think there is simply too much uncertainty for me to go long in the next 6 months unless it hits 15/share which may never happen. If the company can monetize mobile and show quarterly results in the next year I would consider a long position for anywhere from 15-20 a share. Investment banks don't have to buy anything. If they don't think the stock is worth buying - they won't. If they think it is - others on the secondary market will probably think so too. Initial public offering is offering to the public - i.e.: theoretically anyone can participate and purchase stocks. The major investment firms are not buying the stocks for themselves - but for their clients who are participating in this IPO. I, for example, receive email notifications from my brokerage firm each time there's another IPO that they have access to, and I can ask the brokerage to buy stocks from the IPO on my behalf. When that happens - they don't buy the stocks themselves and then sell to me. No, what happens is that I buy a stock, through them, and they charge me a commission for the service. Usually IPO participation commissions are higher than regular trading commissions. Most of the time those who purchase stocks at IPO are institutional investors - i.e.: mutual funds, pension plans, investment banks for their managed accounts, etc. Retail investors would probably not participate in the IPO because of the costs, limited access (not all the brokerage firms have access to all the IPOs), and the uncertainty, and rather purchase the stocks later on a secondary market. FACE dropped its 10Q on 3/31/12  They reduced their total liabilities by 16%, reduced their accounts payable by 30%, looks like they eliminated their ST Debt, and increased their equity by 6%.  I'm not saying that they had a great quarter, but the numbers don't look to shabby. I don;t think you can accurately attribute the increase in their stock valuation to FB's IPO. "Simple answer: Yes  A better question to ask might be ""Should I invest all my savings to buy 4 shares of a single stock."" My answer to that would be ""probably not"". If this is your first venture into the world of owning publicly traded companies, then you're better off starting with some sort of mutual fund or ETF. This will start your portfolio with some amount of diversification so you don't have all your eggs in one basket. If you really want to get into the world of picking individual stocks, a good rule of thumb to follow is to invest $1 in some sort of indexed fund for every $1 you invest in an individual stock. This gives you some diversification while still enabling you to scratch that itch of owning a part of Apple or whatever other company you think is going in the right direction." I didn't say only the IPO I just said public offerings. Trades between secondary investors would be taxed at a higher level. I also understand the difference between loaning money to a company and investing in equity.  Personally I think that loans are underused in today's investment world because people are too focused on getting the most out of the few big winners. "IPO is ""Initial Public Offering"". Just so you know. The valuations are done based on the company business model, intellectual property, products, market shares, revenues and profits, assets, and future projections. You know, the usual stuff. Yes, it is. And very frequently done. In fact, I can't think of any company that is now publicly traded, that didn't start this way. The first investor, the one who founds the company, is the first one who invests in it after raising the capital (even if it is from his own bank account to pay the fees for filing the incorporation papers). What is the difference between ""normal"" investor and ""angel""? What do you refer to as ""angel""? How is it abnormal to you? Any investor can play a role, depending on the stake he/she has in the company. If the stake is large enough - the role will be significant. If the stake is the majority - the investor will in fact be able major decisions regarding the company. How he bought the stocks, whether through a closed offering, initial investment or on a stock exchange - doesn't matter at all. You may have heard of the term ""angels"" with regards to high-tech start up companies. These are private investors (not funds) that invest their own money in start ups at very early stages. They're called ""angels"" because they invest at stages at which it is very hard for entrepreneurs to raise money: there's no product, no real business, usually it is a stage of just an idea or a patent with maybe initial prototype and some preliminary business analysis. These people gamble, in a sense, and each investment is very small (relatively to their wealth) - tens of thousands of dollars, sometimes a hundred or two thousands, and they make a lot of these. Some may fail and they lose the money, but those that succeed - bring very high returns. Imagine investing 10K for 5% stake at Google 15 years ago. Those people are as investors as anyone else, and yes, depending on their stake in the company, they can influence its decisions." The more the stock is worth, the more it needs to rise to make a profit. You can buy some stock from Google or amazon, but that's about all the stock you'd have... Start small with companies you know and trust that have an upward trend. I have a hard time giving them a P/E higher than 25 on the absolute top end. Given current numbers, that takes another ~60% off their share price putting them right around $10. Now... that's my top end estimate, I'd probably be willing to buy right around $8.  In order to support the IPO price, the models I've seen come in at projecting an average growth rate of 40% YoY for the next 5 years. If FB pulled that off, they'd be growing ~5X over the next 5 years (once compounded). As it stands, they've got 900B+ users. Doubling that would require a significant number of new people to start coming on line - 5x that would be impossible.  So... next option... They figure out how to monetize existing users/traffic better. It's possible - they don't do a very good job with this as it stands, but they've got a fine line to walk. They need to pull it off without driving users, or advertisers, away.  Suppose they were able to double their user base. They'd still need to do ~2.5x better per user to make the numbers. This doesn't take into account that the next billion users are significantly less valuable as an audience than the first billion. (Not in human terms, but in financial/marketing terms.)  I'm willing to give them a 20% growth rate for the next 5 years. That'd put them at a bit better than 2.5x over that time. It's still a stretch. That should put them in the same P/E range as GOOG (currently trading at a P/E of 17ish).  Any price higher than $10/share at this point is gambling on their ability to crack monetization. The higher you go, the higher you think the odds are.  One last thing I'd keep in mind. Most of the early employees with options are locked out of selling for the first 6 months after the IPO. There's a fairly large number of shares that will become available when that time is up. I'm curious to see how many of the early employees call in rich and go start new companies. (Think about what happened to paypal after being sold to ebay - yelp, youtube, and others all came out of the early employees.) I'd be watching the quarterly reports through the quarter ending 12/31. The numbers at that point will give a better gauge of a proper valuation. I absolutely wouldn't hold shares of FB during the period when employees first have their chance to cash their lottery tickets. "You are probably going to hate my answer, but... If there was an easy way to ID stocks like FB that were going to do what FB did, then those stocks wouldn't exist and do that because they would be priced higher at the IPO. The fact is there is always some doubt, no one knows the future, and sometimes value only becomes clear with time. Everyone wants to buy a stock before it rises right? It will only be worth a rise if it makes more profit though, and once it is established as making more profit the price will be already up, because why wouldn't it be? That means to buy a real winner you have to buy before it is completely obvious to everyone that it is going to make more profit in the future, and that means stock prices trade at speculative prices, based on expected future performance, not current or past performance. Now I'm not saying past and future performance has nothing in common, but there is a reason that a thousand financially oriented websites quote a disclaimer like ""past performance is not necessarily a guide to future performance"". Now maybe this is sort of obvious, but looking at your image, excluding things like market capital that you've not restricted, the PE ratio is based on CURRENT price and PAST earnings, the dividend yield is based on PAST publications of what the dividend will be and CURRENT price, the price to book is based on PAST publication of the company balance sheet and CURRENT price, the EPS is based on PAST earnings and the published number of shares, and the ROI and net profit margin in based on published PAST profits and earnings and costs and number of shares. So it must be understood that every criteria chosen is PAST data that analysts have been looking at for a lot longer than you have with a lot more additional information and experience with it. The only information that is even CURRENT is the price. Thus, my ultimate conclusive point is, you can't based your stock picks on criteria like this because it's based on past information and current stock price, and the current stock price is based on the markets opinion of relative future performance. The only way to make a good stock pick is understand the business, understand its market, and possibly understand world economics as it pertains to that market and business. You can use various criteria as an initial filter to find companies and investigate them, but which criteria you use is entirely your preference. You might invest only in profitable companies (ones that make money and probably pay regular dividends), thus excluding something like an oil exploration company, which will just lose money, and lose it, and lose some more, forever... unless it hits the jackpot, in which case you might suddenly find yourself sitting on a huge profit. It's a question of risk and preference. Regarding your concern for false data. Google defines the Return on investment (TTM) (%) as: Trailing twelve month Income after taxes divided by the average (Total Long-Term Debt + Long-Term Liabilities + Shareholders Equity), expressed as a percentage. If you really think they have it wrong you could contact them, but it's probably correct for whatever past data or last annual financial results it's based on." Oh, I see what you mean. It depends which side you look at it from: the company, or the individual investor.  For the individual investor, I guess it doesn't matter. As you said, you only buy the amount of stocks you can afford. What matters afterwards is whether the price of your stocks goes up or down. That's when the company valuation comes into play. If a company is overvalued, the stock prices are going to go down until they reach the [equilibrium point](http://en.wikipedia.org/wiki/Economic_equilibrium). Or, rephrasing, stocks go down when more people will want to sell than buy, creating an excess supply, so sellers will be willing to offer lower prices so you buy from them. Stocks go up when the opposite happens, more people will want to buy than sell, so buyers will have to offer more money to convince sellers to sell.  In essence, Facebook was overvalued, and not enough people were buying their shares, creating excess supply, so, sellers had to offer lower prices. Had Facebook been properly valued, people would've felt the stocks were a good price, everyone would've rushed to purchase, and stock prices would've gone up. Regardless of whether a stock is owned by a retail investor or an institutional investor, it is subject to the same rules.  For example, say that as part of the buyout, 1 share of Company B is equivalent to 0.75 shares of Company A and any fractional shares will be paid out in cash.  This rule will apply to both the retail investor who holds 500 shares of Company B, as well as the asset manager or hedge fund holding 5,000,000 shares of Company B. "I actually tend to disagree.  This was one of the most watched IPOs in history.  Facebook would have benefited greatly from a pop.  People would have thought ""wow, they really can do no wrong"".  Instead there are endless negative articles about how this is a horrible failure.  Sure, financially savvy people look at this and think FB did a beautiful job.  They maximized their take from the IPO.  But the price of the bad press can't be accurately measured.  The benefit in terms of publicity of being seen as a stock/company on the move UP is hard to measure too.  Suppose they had priced it at $25 and limited the number of shares they would have gotten less money but they'd also be looking at a massively successful pop on their share price.  The halo effect on their business of THAT reality seems to me to have had the potential to be significant.  So I'm not so sure, in the long term, whether it would have made more sense for them to get less money up front and get a successful IPO rather than go for the max dollars and have a PR disaster.  I think the way things turned out made FB go from an unstoppable juggernaut into a company that can fail just like any other." "Alrighty.  So your question is, how confident are people that FB stock will close above a certain price at a certain time.  A ""call"" option contract allows you to buy shares in the future at a certain price.  FB calls are available for March of 2013.  The number in the ""strike"" column is the price you can buy FB stock at on the given date. Let's take the ""33.00"" strike.  This allows you to buy FB shares at $33 each next March.  If at that time it turns out they're worth $50 each, you can buy them at $33, then immediately sell them on the open market for $50, making money.  The person selling you the option knows that there's a chance the price will be above $33 in March, so he's going to charge you a few bucks to cover that possibility.  In this case, he's charging you $5.30 (as of me writing this).  So, you can have the option to buy FB shares at $33 each for $5.30.  This means the guy selling you the option is reasonably confident that in March, FB stock will be at or under $38.50, otherwise he'd lose money when you exercised the option.    Therefore, $38.50 is the option market's best guess as to the highest FB stock will be going for in March." Summarized article: The NASDAQ announced it will offer $40 million to compensate clients who were disadvantaged by technical problems during Facebook's IPO on May 18.   NASDAQ's technical glitch caused a delay in the opening of first day trading of Facebook shares and traders experienced slow order confirmations.   NASDAQ said $13.7 million will be paid to its affected investment firms and the balance will be given to the firms as credit to reduce trading fees. The benefits would last as long as 6 months.   Investors who are eligible for compensation are those who placed orders to buy Facebook shares at $42 or less but were executed at an inferior price or those whose orders went through but were not immediately confirmed.  The New York Stock Exchange (NYSE) opposed the compensation offer saying the move would allow NASDAQ to undercut them on prices and would take market share from competing exchanges.   NASDAQ's compensation plan is subject to regulator approval.    Facebook shares are currently down 30% from the IPO price of $38.  *For more summarized news, subscribe to the [/r/SkimThat](http://www.reddit.com/r/SkimThat) subreddit*