Facebook IPO Will Be Tough for Investors to Get In On
Investors who "like" Facebook may now be able to put their money where their clicks are.
Given the large degree of attention on this IPO, though, investors shouldn't expect to actually get shares or make money on them. "I anticipate there to be many orders relative to the number of shares available to allocate," says Jay Ritter, professor of finance at the University of Florida.
Some key caveats and risks investors interested in getting Facebook shares from their brokerages should keep in mind include:
Rules limit who is eligible. Most online brokerage firms reserve the right to limit who gets Facebook shares. Fidelity investors must have $500,000 in qualified balances at the brokerage or trade 36 times a year or more to be considered, the company says. Schwab is telling customers to call their representatives to see if they are eligible.
TD Ameritrade is allowing investors to participate if their account is valued at $250,000 or more or they have completed at least 30 trades in the past three months.
No guarantee of shares even for qualified investors. While investors might request shares, they might not get any or as many as they'd like, Ritter says.
Stipulations to ownership. Most brokerages don't require investors to hold IPO shares for a set number of days but may punish investors who don't. E-Trade recommends investors hold IPO shares for at least 30 days and may exclude investors who don't from future deals, says the company's website.
Fidelity investors may be precluded from future IPOs if they sell in fewer than 15 days.
Returns could be disappointing. With Facebook coming to market with a valuation of roughly $86 billion on the total company, even buying at the IPO price could be risky, says Francis Gaskins of IPOdesktop.com.
The company's value is lofty given that growth has been slowing, he says.
And Internet IPOs aren't surefire winners, as some recent deals show. Online coupon company Groupon and Internet radio company Pandora have seen shares fall 48 percent and 41 percent, respectively, from their IPO prices.
Even so, investors hoping for Facebook shares won't know if they're in until after the IPO sets its price late next week, as is now expected.
"It's going to be difficult" to get many shares, Ritter says.
This story first appeared in USA Today.