SAN FRANCISCO: It's the year's hottest initial public offering, but some wealth managers find themselves having a hard time recommending Facebook to their clients.
The world's biggest social network is expected to seek a $75 billion to $100 billion valuation in its IPO, the most anticipated stock offering from Silicon Valley since Google Inc went public in 2004. At Granite Investment Advisors in New Hampshire, Chief Investment Officer Scott Schermerhorn has already been fielding queries from clients eager to get in on the action.
"We had some clients call and once we step them through the numbers, they sober up," he said. "The valuation is 100 times earnings in a stock market that is trading at 12."
"At the end of the day, if you have a small amount of money that you are in a position to lose a chunk of it and you want to speculate on Facebook, go ahead," he added. "But don't use money that you really need to save to do it. I would put it in Microsoft, which is dirt cheap right now."
To be sure, most technology analysts would argue that Facebook's growth potential far exceeds that ofMicrosoft Corp , whose stock has largely traded between $20 and $30 in the past decade. It is taking its first steps toward content streaming for instance, and has yet to make a serious overseas thrust.
And a $100 billion valuation for Facebook at the top end - while huge in absolute terms - is not that out of whack in Silicon Valley IPO tradition. Facebook is seeking a multiple of up to 27 times annual revenue, or up to 100 times earnings.
Apple Inc - today, the world's most valuable technology corporation - went public at a valuation of just $1.19 billion in 1980, equivalent to 25 times revenue and 102 times earnings. Google - to which Facebook is most often measured against in terms of potential - was valued at $23 billion at the time of its 2004 debut, or 218 times earnings.
But the sheer size of Facebook's valuation means that it will have to become the world's first $700 billion company if it is to replicate the gain in Google's stock.
"At these valuations, investors really need to set aside emotion...and invest with their heads," said Edward Reinhart, managing partner at Capital Advisors Wealth Management, who owns Facebook shares bought on private markets two years ago.
Reinhart, who advises clients on retirement planning, warned that hype building up ahead of Facebook's IPO could mean "dangerous waters for the retail investor
The world's biggest social network is expected to seek a $75 billion to $100 billion valuation in its IPO, the most anticipated stock offering from Silicon Valley since Google Inc went public in 2004. At Granite Investment Advisors in New Hampshire, Chief Investment Officer Scott Schermerhorn has already been fielding queries from clients eager to get in on the action.
"We had some clients call and once we step them through the numbers, they sober up," he said. "The valuation is 100 times earnings in a stock market that is trading at 12."
"At the end of the day, if you have a small amount of money that you are in a position to lose a chunk of it and you want to speculate on Facebook, go ahead," he added. "But don't use money that you really need to save to do it. I would put it in Microsoft, which is dirt cheap right now."
To be sure, most technology analysts would argue that Facebook's growth potential far exceeds that ofMicrosoft Corp , whose stock has largely traded between $20 and $30 in the past decade. It is taking its first steps toward content streaming for instance, and has yet to make a serious overseas thrust.
And a $100 billion valuation for Facebook at the top end - while huge in absolute terms - is not that out of whack in Silicon Valley IPO tradition. Facebook is seeking a multiple of up to 27 times annual revenue, or up to 100 times earnings.
Apple Inc - today, the world's most valuable technology corporation - went public at a valuation of just $1.19 billion in 1980, equivalent to 25 times revenue and 102 times earnings. Google - to which Facebook is most often measured against in terms of potential - was valued at $23 billion at the time of its 2004 debut, or 218 times earnings.
But the sheer size of Facebook's valuation means that it will have to become the world's first $700 billion company if it is to replicate the gain in Google's stock.
"At these valuations, investors really need to set aside emotion...and invest with their heads," said Edward Reinhart, managing partner at Capital Advisors Wealth Management, who owns Facebook shares bought on private markets two years ago.
Reinhart, who advises clients on retirement planning, warned that hype building up ahead of Facebook's IPO could mean "dangerous waters for the retail investor
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