Facebook Rally
Research for Online Investors

02/01/12

The market is off to the races this morning, led by the technology sector.  We will call it the “Facebook” rally.  The market is buzzing with the chance to buy in.  I’ll pass.  Expectations of a $10 billion offering have been lowered to only $5 billion.  Morgan Stanley is running the lead on the underwriting.  AAPL hit new all time highs yesterday and again this morning.

The technology sector ETF XLK is going nuts.  We have watched the NASDAQ rally recently, but now the Russell 2000 (IWM) is jumping on board.

Facebook is expected to file an application with regulators after market close today, to sell 5% of the company for $5 billion dollars.  This would value the total company at $100 billion.  Low side estimates are a total valuation of $75 billion dollars.

Trading of the stock would not occur until later in the spring, perhaps in May.  This small offering registration is seen as a “placeholder.”  The company and underwriters may decide to add to it for a larger offering before the actual IPO.

Facebook was started in 2004 by Mark Zuckerberg in his dorm room.  By 2007, the social media website had 50 million users.  In 2011, the company had 800 million users around the world.  Seventy-five percent of the users are outside of the United States.  Facebook does not operate in China.

Facebook is able to gain information from its users that allow advertisers to target them with ads that fit their interests.  A perfect example would be a young woman that is pregnant.  She would be targeted by ads for baby supplies and other items of interest to a pregnant woman.

In the last year, Facebook has become the largest platform for display advertising on the Web.  Facebook runs 28% of all display ads in the United States.  Yahoo comes in second with less than half of Facebook’s share.

The German DAX index is up 12% this year on hopes the worst of the eurozone credit problems are behind them.  We think they are being optimistic.  Greek politicians are resisting efforts by the eurozone to lower the minimum wage and take other austerity measures.

The European Central Bank (ECB) may be willing to participate in reducing Greek debt if the government is successful in their negotiations with private bondholders.  Charles Dallara is negotiating with the Greek government and has now gone public with demands that ‘public institutions’ participate since private bondholders only own 60% of Greek debt.

Bloomberg reports the ECB may forego profits on Greek bonds (since many were bought at a discount).  They may transfer the bonds to the EFSF, ESM, or sell them back at cost to Greece.  Barclays estimates the ECB holds between $47 billion and $71 billion dollars in face value of Greek bonds.

The market is pushing up against July 2011 highs of 1236.  It may take a few times to get through resistance, but barring headline risk, it seems the handwriting is on the wall.  The ECB will offer low interest money to banks again this month at one-percent for three years.  Another major liquidity event!

Mailbag:
Your quote of our president is shitty.  Right after this in his book he says he has grown up since then.---Long-Term subscriber G.O.

John’s reply:  Not my words…his.  I picked it up from Snopes.com  That is a liberal fact check website.  I have not read his book, as I would not want any of my money to go to benefit him.  Snopes did not include the line you reference.  I did not try to take it out of context.  A snot nosed entitled kid may grow up, but he is still what he is…and that is being kind.

We know he has little respect for the White House as there are numerous pictures of him with his feet on the furniture, much of it antiques loaded with history.---subscriber J.W.

John’s reply:  What would Woodrow Wilson think?

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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