Market buzz versus the hard numbers - CMC Markets provides an analysis
SINGAPORE, May 17, 2012 -- Facebook is finally going public on Friday 18 May (as widely expected), and retail investors will at last be able to trade the company's shares. However, we have yet to see if anyone will be able to make money from the landmark IPO, or if it is purely a chance for the private shareholders to cash in.
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, Cieszynski said, "Companies around the world go public all the time, but only a few captures 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 will be any room for anyone else to make money."
To answer the question of whether the Facebook IPO will be a flash in the pan or a real money maker, 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).
- 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.
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 with traditional stock market seasonal trading swings."
CMC Markets' customers will be able to trade on the price movement of Facebook shares via their CFD accounts on Friday afternoon (18 May), directly after Facebook shares are expected to list on the NASDAQ. Please note that trading Facebook CFDs does not mean that a trader acquires physical Facebook shares but instead gains similar exposure to them.
|Day 1 Trading Price||Baidu||Groupon||Visa||MasterCard||GM||T Hortons|
|Close/Top of Day 1 Range||53.95%||68.52%||4.01%||33.38%||10.71%||99.15%||14.29%||2.00%|
Average Returns in the Days Following a High Profile IPO:
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