Reposted from Seeking Alpha
By Brian Langis
Facebook’s (FB) stock price has finally soared past its initial IPO target. Facebook is currently trading at ~$50 which is good enough for a monster one year return of 130%. The stock has been on a tear and everybody is merry. Basically, I’m here to suggest that if you made money holding your Facebook shares, good for you and cash out while it’s hot. Why? It’s all about the valuation, not Facebook. Facebook is great company. The valuation is not. Sometimes we confuse the two.
What do the IPOs of Facebook, Zynga (ZNGA), and Groupon (GRPN) all have in common? They all had excessive initial valuation. With the Twitter (TWTR) IPO coming soon, we can already hear Wall-Street marketing drums going to work. Goldman Sachs, the lead underwriter, will be pricing the company for the offering, not valuing it. A stock has a price and a value. Very often they are not in sync with each other. Like the companies mentioned above, Twitter is a nice successful story but its valuation is out of whack.
First, this article will briefly review the factors that lead to an over valuation of Facebook. Second, with the Twitter IPO coming soon, I want to point out the lessons learned from these IPO flops.