In a very modern version of ancient Rome’s bread-and-circuses formula, Facebook is staging its roadshow for major institutional investors this week, while tossing some bits to the masses—or, at least, to the individual investors among the masses who want to get in on its initial public offering [IPO] when it hits the market next week.
However, it won't be easy picking up those crumbs. Companies going public routinely distribute most of their available shares to the big-bank underwriters, who resell most of them to their biggest institutional clients. According to the New York Times, when the Facebook IPO launches on May 17 “as much as” 20% to 25%” of the 337 million available shares will be distributed through brokerage firms that cater to individual investors. The usual cut to retailers is about 15%.
The first clear sign of Facebook’s intentions came last Thursday in an updated IPO prospectus, which added E*TRADE (ETFC) to a list of 33 underwriters headed by usual suspects JPMorgan (JPM), Goldman Sachs (GS), and Morgan Stanley (MS). Other online trading firms, including Charles Schwab (SCHW) and TD Ameritrade (AMTD), are expected to offer shares to their clients as well, according to the Wall Street Journal.
Did we mention that Warren Buffett says he wouldn’t buy Facebook shares? And that, in fact, he has a personal rule against ever buying an IPO?
The number of shares available to retail investors at the IPO price, estimated at a range of $28 to $35, will be limited, and most brokers will place restrictions on their sale. E*TRADE, for instance, is requiring that prospective buyers fill out a sort of financial IQ test on their income, investing experience and objectives. If they pass the test, they may place a conditional order for shares at a maximum price. Other retail brokers may require a minimum account balance for IPO participation, or a minimum order size for Facebook shares.
Did you hear that Facebook management doesn’t have an explanation for the drop in its revenue in the first quarter of this year, except for “seasonality?”
The small investor also can get exposure to Facebook through one of the many mutual funds that already own pre-IPO shares of Facebook, or will be able to buy them at the IPO price. They include the T. Rowe (TROW) Price Growth Stock fund; the Morgan Stanley Focus Growth Fund, and some 30 different funds offered by Fidelity.
Have you considered that Facebook’s growth rate, while still awesome at 33% year over year, is slowing? Or that the company acknowledges that about 5% of its users are probably fakes?
Meanwhile, the road show that started in New York City on Monday keeps rolling all week, but it’s an invitation-only party for big-time investors. If your invitation got lost in the email, the video version is available online.
Did we mention that Groupon (GRPN) is now selling for about half of its IPO price, set in July 2011?
Web Watch In Brief:
Opening the Virtual Wallet
An upgrade to the credit card swiping device that Visa (V), Discover (DFS), and MasterCard (MA) are counting on to reduce fraud will give an unexpected boost to the nascent virtual wallet industry. The newer “smart card” terminals can read a computer chip embedded in a credit card in order to detect fraud. And, the New York Times reports, the device also can process transactions that use near-field communication, or NFC, the technology used by Google (GOOG) Wallet and the Isis Mobile Wallet system.
Consumer adoption of the “smart wallet” has been limited by the scarcity of merchants who are equipped to accept them. But VeriFone (PAY), the payment processing firm that provides many of those terminals, now installs only the newer NFC-enabled terminals. The credit card companies have notified their merchants that they must install the newer system soon—or cover credit card fraud out of their own pockets.
In addition, Isis has just announced that its system will be supported by other payment device providers including Ingenico, ViVOtech and Equinox Payments, according to the site MobileCommerceDaily. Isis, a joint venture of AT&T (T), TMobile and Verizon (VZ), has been rolling out city by city as it works to sign up merchants to accept its payments system.
According to the Times, VeriFone now expects NFC to be mainstream within five years.
But there’s one more hurdle to jump: Most of the smartphones currently in use aren’t enabled for NFC. Within two to three years, more than half of the smartphones manufactured will be NFC-enabled, according to a report on BGR.com.
Other competitors in the smart wallet race, including the startup Square and eBay’s (EBAY) PayPal, use wireless technology instead of NFC, and distribute their proprietary devices directly to merchants.
At a Sears Store Near You
Sears (SHLD) is working to get the old-fashioned weekly bargain circular into an updated and enhanced Web format. Newly-launched SearsLocalAd.com is a searchable site of weekly sale items by department, localized for the customer with real-time information on stock availability.
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