Cramer: Don’t Buy Facebook in Open Market Friday
After much anticipation, Facebook priced its initial public offering at $38 a share on Thursday — the high end of the expected range of $34 to $38 — making it the largest Internet IPO in history.
Facebook's IPO is expected to raise $16 billion in proceeds, thereby increasing its value to $100 billion. The social network is set to begin trading Friday at around 11 a.m. ET on the Nasdaq under the ticker .
Any investor who can buy Facebook shares at the offering price should take the opportunity, said Jim Cramer on CNBC’s “Mad Money.” All things considered, though, he feels “queasy” about the prospects of making money in Facebook by doing anything other than selling it into the aftermarket.
While the Menlo Park, Calif.-based company has been able to raise revenues, generate profits and attract 900 million users, it does face some challenges, Cramer said. There are doubts about whether advertising on Facebook works better than traditional media, for example. Earlier this week, General Motors decided to discontinue its $10 million Facebook ad budget because it felt the ads had little impact on consumers.
Facebook also has a rich valuation following its IPO, Cramer said, not to mention how much it’s likely to increase at Friday’s open. It’s also the subject of a “social media frenzy” that’s produced losses for aftermarket buyers of the other Internet stocks that have become public this year, he added. Many of these stocks skyrocketed on their first day of trading, only to fall sharply soon after. In addition, Facebook’s stock doesn't offer any dividend protection.
“It will have a host of shareholders who will be up huge right at the opening, many of whom are aware of the perils I've mentioned," Cramer said. "Those shareholders are your enemy if you buy this stock. They are dangerous opponents.
"They have nothing to lose from selling and everything to gain and they will take those gains at your expense if you're a buyer once the stock opens, especially if you place a moronic market order,” he said.
So what’s the bottom line? Regardless of which direction the market goes, Cramer recommends investors avoid buying Facebook in the open market on Friday.
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—Reuters contributed to this report
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