Unless you've been living in a cave in Afghanistan somewhere, you've probably heard by now about the Facebook Initial Public Offering (IPO) scheduled to take place later this month.

We thought that we would use this week's column to answer some common questions that you may have about the IPO and how and when an investor could theoretically purchase shares of the company if they're interested in doing so.   

When is the IPO scheduled to take place?

Latest reports have the IPO happening on May 18th, with a road show by key Facebook executives beginning on May 7th at Morgan Stanley.  However, Facebook does reserve the right to file an extension for a later date if they need to.     

How big is Wall Street expecting the IPO to be?

Facebook is set to raise the roof off Wall Street with its upcoming initial public offering, which has a target valuation on the social-media giant which could go as high as $96 billion.  

According to news sources at Yahoo, Facebook chose to list their stock on the Nasdaq over the New York Stock Exchange (NYSE) purely as a matter of choice.  The NYSE is widely seen as the home of the traditional "blue chip" companies (i.e. Proctor and Gamble), while the Nasdaq's reputation is more associated with Silicon Valley - and, their minds, more appropriate to Facebook's image.

How much will shares of Facebook Cost?

Recent transactions on the private market put estimates of a price of a single Facebook share at between $38 and $40.  However, the company's investor relations spokesperson issued a press release that the share price for the IPO will most likely be issued at between $28 and $35.

Why the price discrepancy between what the share is valued at and what Facebook is pricing the IPO at?

We typically see this with high-profile IPO's.  Meaning, Facebook and their Investment Bankers (i.e. Morgan Stanley) are doing what we call "managing expectations" for Wall Street.  By setting the bar low they are almost assured to beat expectations on the day of the IPO and get the bounce in price that they are looking for.  Have you every heard of the expression "under promise and over deliver"?   

The true litmus test will be if shares of Facebook can sustain long term growth to the share price over time rather than an imminent quick pop on opening day. 

Who is handling the IPO for Facebook?

Some 31 banks are advising Facebook on the IPO deal, but the main players are Morgan Stanley (MS), JPMorgan (JPM), Goldman Sachs (GS), Bank of America (BAC), Barclays (BCS) and Allen & Company.   

At least $5 billion, according to most analysts' estimates.  If the estimate is true, it would make Facebook the largest internet-related IPO on record.   

When can investors jump in to buy Facebook stock?

Since most of us, as investors, will be on the outside looking in to this IPO on day 1, it's good advice to wait for at least a couple of days for the stock price to settle back down before actually jumping in.

Is it good to invest in an IPO?

The simple answer is, it depends.   

Historically, there have been huge success stories in the past of IPO's that have made a tremendous amount of wealth for it's shareholders.  The most recent, and arguably the most extreme, example of this would be Google which went public back in 2004.  However, for every success story there are many IPO's that have not panned out in the capital markets only to see the firm's board take the company's stock private again years later.

Here's a quick look at a couple of recent IPOs and how their stocks have fared:

Yelp (YELP) - a company that connects users and allows them to provide ratings on all kinds of business, the first day of trading was March 2, 2012: 

• IPO Price: $15 per share
• First-day's close: $24.58, up +64% from Day 1 price
• Trading range since IPO: $19.36 to $31.96  

Zynga (ZNGA) - a developer of social online games, the first day of trading was Dec. 16, 2011: 

• IPO Price: $10 per share
• First-day close: $9.50, down -5% from Day 1 price
• Trading range since IPO: $7.97 to $15.91.

Financial highlights (good and bad) 

First, the good news.  Facebook generated $1.06 billion in revenue during the first quarter of 2012, according to an updated filing for the social network's IPO - (The updated filing is part of the IPO process when a company goes public.).  The $1 billion is up from $731 million a year earlier.      

A 'slight negative' for Facebook from the filling shows that while revenue was up +45% from 2011, it was down -6% quarter over quarter and was still weak compared to analysts' estimates of $1.3 billion.

This is the first time in at least three (3) years that Facebook's revenue is lower versus it's prior quarter.   According to Jed Williams, an Analyst with BIA Kelsey, "the company would need to grow revenue at 41% each year for the next five years to sustain it's current valuation".  While this figure is certainly doable for a high-growth company like Facebook, it should not be taken lightly. 

Another thing to consider is Facebook's current barrier to entry in most of China.  Facebook has said on the record that "international markets are essential sources for significant growth in the future".  However, the social networking firm is mostly blocked in China, leaving hundreds of millions of internet users out of reach, for the time being. 

As of today, the eight-year-old firm has more than 901 million members, and nearly half a billion people around the world who log into Facebook every day, according to the latest statistics.  

Will I be able to buy shares of Facebook prior to the day of the IPO?     

Most likely, no.  It's important to understand that the outstanding shares being offered to the "public", and we use that word rather loosely, will be divied out to very high net worth investors (i.e. $50-100 million) and institutional investors such as brokerage firms, insurance company and hedge funds.  In other words, unless you are well connected to someone in the inner-circle expect to be outside, looking in, on initial shares of Facebook stock prior to the IPO.   

Matt and I have tried numerous times from our two (2) IPO sources to get shares of the stock prior to the launch date but have been shut-out.    

Unfortunately, how shares get handed out prior to an IPO is still a carryover from the old guard of Wall Street back in the day when it was based on who you know.  Now, that doesn't mean you cannot own Facebook.  As we pointed out above, you can own Facebook as soon as it begins trading publicly on the Nasdaq exchange.  

Does Camelback Wealth recommend buying Facebook at this time?

Based on what we know at this point we do like the stock.  However, because Facebook is not a "public" company, yet, we are going by relatively limited data.  Like Google, we see tremendous value in owning a piece of the social-media giant.  However, as trend followers, we would be remiss to recommend any security without any historical patterns to dissect and analyze.   

If your adamant to owning a high-flying tech stock, until the buzz surrounding Facebook dissipates somewhat, we like Google stock (GOOG) as a substitute.  At this point in time, Google's fundamentals appear to be superior to Facebook.  Of course, once Facebook begins trading publicly we'll add it to our weekly Watch List of potential stocks to own. 

In The News...     

Contrary To The Latest Sideways Direction For Stocks U.S. Corporate Earnings Continue To Be Strong

As an investor, never forget the fundamental principle to investing, that being, a company's earnings (aka net profit) inevitably drives the price of it's stock in the long run.  With that being said, U.S. corporate earnings continue to be strong across most of the stock sectors (i.e. technology, consumer staples, etc...).  

More than ½ of the S&P 500 companies have reported earnings thus far for Q1 2012 and, of those, almost 80% have beat Wall Street's expectations.  In example, Apple, Amazon, EBay and Expedia have posted very large stock moves higher, but there were also broad based smaller moves higher by many other names in the industrial and consumer sectors.

Housing Data and Most of the Home Builder Stocks In The United States Showing Strength 

• Stunned Home Buyers Find Bidding Wars Are Back  Wall Street Journal Article 

• Manhattan Apartment building prices have risen to record highs  Bloomberg Article 

Citigroup's Comment On Less Than Expected  U.S. Gross Domestic Product (GDP)

"U.S. GDP may look like a disappointment on the headline, but it's actually very healthy on the details. +2.9% on consumption is perfect. +6.0% on private investment is also goldilocks. What brought the number down is -3.0% on government spending. But that's what we want, to cut government spending as fast as we can while still keeping GDP above 2.0%."

Analyst for Citgroup. 

Another Example of Big Corporations Getting Out of The Pension Business and Passing On the Risk/Responsibility To The Little Guy

Ford Motor Company recently announced it would offer a voluntary lump-sum payout to a total of about 90,000 of their U.S. salaried retirees and former employees as the latest move in its long-term strategy to de-risk its $39.4 billion U.S. pension plans...  "It could stimulate copycats (among other corporate pension plans) so I would think we might see a fair amount of this particularly from companies whose pension plans are liquid enough or whose capability to fund their plan is not under great stress so you might see a lot of this."   Pension Article 

Facebook vs. Google  

An excerpt from the NY Times article (see attached link) noted: "...Google's notched revenue growth of 125 percent in the second quarter of 2004, compared with the same period the previous year. That was much faster than Facebook's 45 percent increase in the first quarter of this year. At the same time, Google increased its earnings by 146 percent as it headed into its I.P.O., not falling like Facebook's profit."    NY Times Article      

2012 Is Not Panning Out To Be A Good Time For College Students To Be Entering The Job Market

About 1.5 million, or 53.6%, of bachelor's degree-holders under the age of 25 last year were jobless or underemployed, the highest share in at least 11 years.  In 2000, the share was at a low of 41%, before the dot-com bust erased job gains for college graduates in the telecommunications and IT fields.   USA Today Article  

Billionaire and Job Creator, Richard Branson of The Virgin Group, Opines On Ideas To Help The Student Debt Crisis...  

After the recent financial collapse in 2008 of mortgage-backed securities and the era of free and easy credit, many studies warn that the next debt-crisis looming in the United States is the Student Loan Bubble.

Here is an excerpt from Mr. Branson's blog on the subject:   

"All over the world, university students are ratching up thousands of dollars/pounds/pesos worth of debts, completely unnecessarily. Lengthy university courses are set more for the convenience of the professors rather than the students and yet the students end up paying for them.  Here in Chile, seven year courses are not uncommon and the debts that the students accumulate for their courses are real debts unlike in other countries.  So if a student cannot afford to repay their student loans, it destroys their credit ratings and their ability to get mortgages, etc.  There needs to be an urgent rethink in all countries around the globe. Courses for most subjects need to be slashed in half so that students can get out into the real world quicker with less debt and the ability to start earning." 

Richard's Blog 

U.S. Government Proposing Legislation For A Total Ban On Cell Phone Use While Driving A Vehicle... 

While we are skeptical that Congress has the political will to actually pass such legislation, due to the very powerful telecommunications lobby in Washington D.C., it is interesting that they are at least having the discussion.  With Arizona being the first state in the Union to every pass a road rage law (1997), this article did get our attention. 

An excerpt from the article...U.S. Transportation Secretary Ray LaHood called on Thursday for a federal law to ban talking on a cell phone or texting while driving any type of vehicle on any road in the country.  Tough federal legislation is the only way to deal with what he called a "national epidemic,"...LaHood has previously criticized behind-the-wheel use of cell phones and other devices, but calling for a federal law prohibiting the practice takes his effort to a new level.  The National Highway Traffic Safety Administration estimates that 3,000 fatal traffic accidents nationwide last year were the result of distracted driving. Using a cell phone while driving delays reaction time the same amount as having a blood alcohol concentration of .08, the legal limit, the highway agency said.    

Reuter's Article 

Interesting Quote From The Week... 

...For Some Consumers Spending Is Alive & Well 

On Wednesday of last week the pastel version of "The Scream" by Edvard Munch sold for close to $120MM by an anonymous buyer.  CNN Article