The Facebook IPO / Aozora Alliance

Online, February 22, 2012 (Newswire.com) - Facebook, the social networking behemoth, is on the brink of one of the largest IPO's of all time. The company is looking to raise $10 billion from the IPO, which would value Facebook at $100 billion, putting it in the top 5% of companies on the Standard & Poor's 500. However, analysts at Aozora Alliance believe it could struggle to maintain that high market capitalization.

IPO's, by their nature, generate a great deal of hype and investor momentum, we only need to look at the IPO of Groupon last year to see an example of that, with its share price falling well below its launch price only a short time after its IPO. Facebook is on another level altogether when it comes to investor hype and Aozora Alliance believes savvy investors should be aware of the pitfalls that lie within.

The filing was made online with the Securities and Exchange Commission in Washington. If all goes as planned, it will likely take until May for Facebook stock to begin trading on a stock exchange. Several major investment banks are involved in the IPO, with Morgan Stanley in the lead role. Goldman Sachs, Bank of America, Merrill Lynch, Barclays Capital and JP Morgan are also included.

"There is a huge need and a huge opportunity to get everyone in the world connected, to give everyone a voice and to help transform society for the future," said Mark Zuckerberg, Facebook's CEO, in a letter that accompanied the filing. "The scale of the technology and infrastructure that must be built is unprecedented, and we believe this is the most important problem we can focus on."

Others warned that Facebook may not be a surefire winner for small investors looking to make some quick money. Certainly, Facebook has been profitable, but it has already made a great deal of money as a private company.

Leaving aside the hype created demand as an issue, Aozora Alliance analysts believe Facebook would have to show close to 30% growth in revenues every year for the next ten years to maintain such a high valuation. Roughly the same figure will have to be maintained as its operating margin, which as a private company Facebook has yet to disclose, although they will have to soon.

Zuckerberg reportedly decided to go public once it became clear that the company had become too big to keep its finances private. By going public, Facebook loses some of its mystery and cool, having to declare profits and losses and answer to shareholders every quarter. But the company will have access to new cash and can use the value of its stock to acquire other companies and to reward its employees.

With a proposed valuation more than twenty times its revenues, Aozora Alliance recommends that anyone other than an expert investor should wait several weeks or months after the IPO to invest in Facebook as the risk of paying an unrealistic price will be greatly reduced.