Facebook - To Buy or Not To Buy

I have been out of the stock game for quite a few years. But all of the attention that is being generated by Facebook's initial public offering this Friday really has my thinking. Do I blow the dust off of my E-Trade account and get in on what could be a huge money-making opportunity? Or do I listen to my conservative conscience and just sit back and watch the story unfold on Friday with nothing at stake?

I have seen other IPO's start off at the predetermined price only to skyrocket in the first few hours of trading. The problem is that you can't always get in at the predetermined price. If the stock starts at $30 a share, by the time your market order gets filled, it could be double that price. That's what scares me. If I choose to buy stock in Facebook, I will certainly use a limit order to protect myself from this scenario. Of course, the downside is missing the buy-in completely and watching the profit train leave the station without you. From what I understand, the initial stock price of  $28-35 will be increased to the $35-40 range in the next day or so. By Friday could we be looking at $50+?

I can't help but wonder if this would be a wise investment in the first place. To make money, Facebook relies on advertisement revenue. In 2009, the company's revenue was $777 million. Last year, it grew to a whopping 3.7 billion. But here's where I get confused.....I know a lot of people who use Facebook but I can't think of even one them that has ever bought an advertised product from the social media website. And with the company now having to answer to Wall Street, there will certainly be much more pressure to increase the revenue stream. Is this a realistic expectation? I think we're about to find out......

CEO, Mark Zuckerberg, is only twenty-eight years old. After this Friday's IPO, he could be the owner of a $100 billion dollar company. This would make Facebook more valuable than iconic American companies like Disney and Ford. Although the numbers certainly add up, I still have a hard time comprehending it.

Most of the employees currently hold restricted stock units (RSU's) that liquidate and become actual stock shares when the company goes public. In other words, most of Facebook's employees will become instant millionaires on Friday. Imagine what that's going to do for company morale!

The estimated cumulative tax bill from the employee's new found wealth will be around $4 billion. Fortunately for cash-starved California, it will also see around $1.5 billion of those taxes. And I'm no fan of the tax man, but the bottom line is....If you're paying him big bucks, it probably means that you're making big bucks.

Even if I do get in on the IPO this Friday, I probably won't invest too much. I'm still gun-shy over what happened to the stock market ten years ago. And this low-risk mindset is probably why I'll never become filthy rich. But on the bright side, I won't have to write Uncle Sam a check for a million bucks.....

kw