Facebook Shares: Flash in the Pan or a Real Money Maker?

LONDON, May 15, 2012 /PRNewswire/ --

Market buzz versus the hard numbers - CMC Markets provides an analysis

Facebook is finally going public and, on Friday 18 May (as widely expected), retail investors will at last be able to trade Facebook's shares. However, we have yet to see if anyone will be able to make money from the landmark IPO shares, or if it is purely a chance for the private shareholders to cash in.

     (Photo: http://photos.prnewswire.com/prnh/20120515/531598 )

Having looked back at some of the highest profile IPOs of the last decade, Colin Cieszynski Senior Market Analyst at CMC Markets, sees definite opportunities to make money - if traders know the rules and are prepared to trade on both sides of the market.

Commenting on the findings of his analysis, Colin Cieszynski said:

"Companies around the world go public all the time, but only a few capture the imagination of the street, the media and the general public. There are usually only so many shares available for sale in an IPO and,if demand outstrips supply, traders are ready and waiting to purchase shares when they debut in the open market. This unfilled demand tends to drive the initial trading spikes, but while this may be great for those lucky enough to get IPO shares, the question remains as to whether there willbe any room for anyone else to make money."

To answer whether the Facebook IPO shares will be a flash in the pan or a real money maker this question, Colin examined post IPO trading for eight major companies that debuted in the last decade, four from the technology sector and four from other industries (see figure1 below).

Key findings:

• In all cases, the stocks closed below their highs for the day although MasterCard finished the strongest

• Half of the stocks finished their first day down from their opening price  

• Following an initial flurry of interest, the stocks tend to fall back for a few days after their IPO as shown in the following chart (see figure 2 below) as initial high levels of interest become unsustainable
  
• Interest in secondary market trading starts about a month after the IPO, supported by the lifting of research blackouts and the release of the company's first earnings report
  
• Because it takes time for companies new to the market  to build a track record, trading in the days following an IPO can be particularly volatile and can create opportunities to profit from moves in both directions.

Colin Cieszynski concluded:

"Performance of previous high-profile internet related IPOs suggests that we could see a major spike off the open and perhaps even strength through the first day of trading. We could then see a retreat through the rest of May and most of June with the potential for an advance in late June or early July as analysts are cleared to publish research and the company's first earnings report approaches. This could also coincide withtraditional stock market seasonal trading swings."

CMC Markets' customers will be able to trade on the movement of the Facebook share price via their CFD or Spread Betting accounts on Friday afternoon (18 May), directly after Facebook shares are expected to list on the NASDAQ.  Please note that trading Facebook CFD or spreadbet products does not mean that a trader acquires physical Facebook shares but instead gains similar exposure to them

Figure 1

    Day 1 Trading
    Price         Google  Baidu    Groupon  LinkedIn Visa     MasterCard GM      T Hortons
 
    IPO            $85.00   $27.00   $20.00   $45.00   $44.00     $39.00  $33.00    $27.00
    Open          $100.01   $66.00   $28.00   $83.00   $59.50     $40.30  $35.00    $36.21
    High          $104.06  $151.21   $31.14  $122.69   $69.00     $46.05  $35.99    $37.99
    Low            $95.96   $60.00   $25.90   $80.00   $55.00     $40.20  $33.89    $33.00
    Close         $100.33  $122.50   $26.11   $94.25   $56.50     $46.00  $34.19    $33.10
 
    Close/IPO      18.04%  353.70%   30.55%  109.44%   28.41%     17.95%   3.61%    22.59%
    Open/IPO       17.66%  144.44%   40.00%   84.44%   35.23%      3.33%   6.06%    34.11%
    Close/Open      0.32%   85.61%   (6.75%)  13.55%   (5.04%)    14.14%  (2.31%)   (8.59%)
    High/Open       4.05%  129.11%   11.21%   47.82%   15.97%     14.27%   2.83%     4.92%
    Close/High     (3.58%) (18.99%) (16.15%) (23.18%) (18.12%)    (0.11%) (5.00%)  (12.87%)
    Close/Top of   53.95%   68.52%    4.01%   33.38%   10.71%     99.15%  14.29%     2.00%
    Day 1 Range

Notes to Editors

CMC Markets is a leading global provider of financial spreadbetting, CFD and foreign exchange (FX). Since Peter Cruddas founded CMC Markets in 1989, the company now services more than 80,000 clients worldwide, who placed approximately 30 million trades last year.

With offices in London, Paris, Milan, Madrid, Vienna, Sydney, Tokyo, Toronto, Beijing, Auckland, Oslo, Stockholm and Singapore, CMC Markets represents clients in over 70 countries.

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The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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SOURCE CMC Markets