Fund managers warn over Facebook flotation detail

Last week the social networking website announced its intention to launch an initial public offering (IPO) worth $5bn, a sum which values Facebook at $80-100bn.

Ian Warmerdam, manager of the £344m Henderson Global Technology fund, said: “The spectacular hype surrounding the extraordinary proliferation of Facebook makes exciting headlines but it’s only when the more prosaic aspects of profit and loss and balance sheet analysis are able to be properly considered in relation to market value that any genuine investment decision be made, and we have only vague details of these at best.”

He warned that the hype surrounding the proposed IPO could mean that “an attractive entry point may not be achievable”, citing previous “hype cycles” in the sector.

GAM’s Star Technology fund manager Mark Hawtin said he would also approach the IPO with caution as Facebook was still “very hard to value”.

“It’s hard to say at this point with any certainty whether it is a good or bad investment,” he said. “We need to get some feel for potential growth rates. At the moment, growth would either need to be higher or the valuation would need to be towards the lower end of valuations.”

Philip Pearson, co-manager of the £96m GLG Technology Equity fund, said he would be participating in the Facebook IPO because of the low valuation of its advertising capacity.

“The debate about the value of Facebook tends to focus on short term user trends, revenues and earnings but fails to spot the key attraction. To an advertiser, the price you pay ‘per eyeball’ on Facebook is roughly one tenth of the price you pay for that eyeball on TV ads.

“As this price gap collapses, we should see dramatic growth in Facebook’s revenue and much of this will drop through to the bottom line. Even at $100bn Facebook looks significantly undervalued.”