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Cramer Trades the Facebook IPO

When it comes to the Facebook IPO, Cramer on Thursday said there are two things to consider: the deal and the valuation. For the time being, the “Mad Money” host recommends investors only worry about the deal itself because “you can’t win unless you are in.”

Valuation will be tough to gauge, Cramer said, because the social network’s 848 million users will probably want a piece of the action. The problem is that there will be way more people interested than the number of those who will actually be able to get in on the deal. Most of these people will be buying in the after-market, maybe even at the open, and that will make it tough to get a pulse on demand.

“What we know is that aftermarket interest is going to control the pop, not the underwriters, and that means you want to get in on the deal, no matter what,” he said. “Many institutions have already circled ten percent [of Facebook], meaning they want ten percent of the deal. They might flip, they might buy more depending upon where it opens.”

Some think Facebook is already overvalued and should be sold no matter where it opens, Cramer said. Others on Wall Street think it is worth at least 10 times revenues, which would give it a $60 billion valuation.

Cramer thinks it could open at $120 billion and if he’s right, investors should sell, sell, sell. If it opens somewhere between $60 billion and $120 billion, he thinks Facbeook is worth holding onto.

The bottom line: If your broker can give you a stock for where the Facebook IPO is actually priced, you have Cramer's blessing. He's not blessing after-market purchases, however, because he thinks people might end up going too high.


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