Facebook: Biggest Technology IPO on Record

"Facebook Raises $16 Billion in Biggest Technology IPO on Record", states Bloomberg headline. With the shares priced at $38, the top end of an increased range, Facebook becomes one of the biggest technology companies in the world based on its market capitalization. $16 billion are raised in this public offering, and the whole company is now valued at $104 billion.

Trading will start tomorrow, and stock price will most probably increase even more. There is no reason to try to predict the situation, but it will be a historic day. And I'm afraid not necessarily in a good sense.

Stock Trading Fleeing U.S. Exchanges

While the markets are recovering slowly from the financial crisis of late-2000s, trading volumes on NYSE and Nasdaq OMX, the biggest U.S. stock exchanges, decline. A variety of possible reasons can be named, including overall slowdown in trading and the rise of popularity of smaller exchanges such as BATS. But there is one more reason - the increasing number of trades being executed at the wholesale brokerages or in so called dark pools - private trading venues.

There is a large article in Businessweek on the topic, called Where Has All the Stock Trading Gone?

According to the data collected by the market research firm Tabb Group, the share of trades executed "off exchange" has increased from 26 to 32 percent in four years, while the volumes traded on Nasdaq and NYSE have fallen by more than a third since 2000. Dark pools attract traders who execute large deals and don't want the market to know about them, and high-frequency traders. And wholesale brokerages now can compete with exchanges offering slightly better prices for sellers and buyers due to the rule for exchanges to increment quote prices at least for one cent.

Dark trading can help investors to earn more on the same operations (though essentially it is available only to the institutional investors) but the main problem of the last crisis was the lack of transparency, and off exchange trading is barely regulated at all. And today, while NYSE struggles to get the permission to provide prices in fractions in order to be able to compete with wholesalers, Knight Capital and the Securities Industry and Financial Markets Association, a lobbying group that represents big Wall Street banks, does its best to ruin this proposal. It looks like bulge bracket banks still prefer not to become subjects of regulation, and to earn money on the unfair markets. Some things never change, unfortunately.

Facebook IPO: An Event We Have All Been Waiting For

On May 3rd, Facebook Inc. announced that the price of its stocks intends to be between $28 and $35, valuing the company between $77 billion and $96 billion. This week the roadshow must be started, and later in May we'll see the biggest IPO in the history of tech companies. After the rise in the beginning of this year, the markets remained quite weak for two months. Maybe this IPO will be able to boost them.

But aside from the possible rise of markets, is an IPO of Facebook with such a great valuation a good or a bad thing? As usually, opinions differ.

In fact, Facebook IPO is quite unique even for the tech sector, or at least it's unusual for the companies of its size. Unlike many other companies that have eventually become giant, Facebook is already very large. When Google went public in 2004 it was already quite famous, but its value has increased ten time since then. And it was the biggest tech IPO in history at that moment. Even if Facebook will go public with $77 billion valuation, it is nearly impossible to imagine that it can grow ten times - then it will cost more that Apple today.

So, it seems that the potential of the future growth is very limited there, and it has always been the main incentive to buy tech companies' stocks. What can Facebook suggest as an alternative? Only great revenues and large dividends in the future. But there is one problem - with present revenues, Facebook's Price to Earnings Ratio will be higher that 50x in any case. And while many companies in tech sector have higher multipliers (LinkedIn, for example, has P/E at level of 900x), all of them are way smaller that Facebook. Of course, the revenues of Facebook have been growing steadily for years, but it can by no means guarantee that the growth will continue. In fact, the last report concerning revenue for the first quarter of 2012 is even disturbing - Facebook seems to begin to spend much more on marketing, and while the revenues continue to grow, net income is less than a year ago. After we have all seen Groupon, which stocks have lost more than 50% of the price since the public offering because of its ineffective business model, large expenses on marketing seem definitely disturbing.

Nevertheless, it is obvious that Facebook IPO will draw a lot of attention, and the price of the stocks is likely to soar after the public offering. Facebook is by no means similar to GroupOn today, and it can be a good investment. It just seems that you need to find an answer to the question "What If Facebook Isn’t So Special After All?" raised in Businessweek a month ago, before investing.

New Europe In A Weekend: French And Greek Election Results

It can be said that this weekend has changed the face of Europe. Yesterday François Hollande, the candidate for presidency from the French Socialist Party, won the election. A Socialist will be a president for the first time in 24 years. François Hollande secured 51.7% of votes. And now he is literally responsible for the fate of Eurozone.

In the meantime, in Greece the elections rouse even more fears, putting, according to the Guardian, "neo-fascists in parliament for the first time, the hard left in second place overall". The future of Greece can be called absolutely unpredictable now, but it's obvious that the policy of austerity has failed, and the same can be said about France.

As Paul Krugman writes in his column for The New York Times about Greece,

Voters take their anger out by voting against the insiders. And since all the respectable people are inside the political tent, backing and being identified with failed policies, that means a big vote for extremists right and left. 

In response to the results of Greek elections, the Greek stock market fell almost 8%. The French markets reacted less vigorous, French CAC 40 down only 1.7%.

Now, it seems that the main question is whether Mr Hollande supports Angela Merkel or not. Angela Merkel is loosing influence, her coalition of Christian and Free Democrats lost an election for control of the northern state of Schleswig-Holstein on Sunday, and if François Hollande doesn't back her, the whole policy of Eurozone may change rapidly.

Ron Paul vs Paul Krugman: Federal Reserve Problem

Hello! I haven't posted anything in almost two weeks, and I sorry about that but I have been extremely busy, and unfortunately things are not going to be better anytime soon.

First of all, I would like to share a spectacular video "Ron Paul, Paul Krugman Face Off" from Bloomberg TV. As the description states, Republican Presidential Candidate Ron Paul and Princeton University's Paul Krugman discuss their views on spending, inflation and the Federal Reserve.

In fact, some parts of this conversation are very funny - especially the moment when they both refer to Milton Friedman. Nonetheless, the problems being discussed are extremely difficult, and the views on them can be absolutely opposite, the video once again demostrates this.