I'm going to make an argument why, though I'm not entirely sold on it.
I think that many people believe that the current valuation isn't based on fundamentals as much as survivor (or Greater Fool) investing. These valuations are based not on revenues but how much the current investors will be able to sell their shares to some later investor. The issue becomes that once Facebook goes public investing tends to skew much more towards fundamental, which may cause a dip in the stock price. Facebook's current P/E somewhere between 70-110? (I'll source these numbers in a sec). This would indicate an extremely high growth company ie in the front of the hockey stick. I think many would start to argue that Facebooks growth is going to start to flatten out. They already say about 500M active users so thats 1/12 the worlds population their user base doesn't have much more room to grow (though increasing revenue per user still still probably has some room to move).
Personally as a small investor I'm staying away from Facebook when it goes public its too volatile (unless I can get pre IPO shares ;-) But at least an argument could be made that a short isn't a horrible play. There's a really good chance of Facebook's IPO starting extremely high and then seeing a significant dip a few months out of the gate as people start taking their money out.
I'm a value investor but my investment philosophy when it comes to tech stocks is slightly different. When it comes to tech stocks I look at the fundamentals, but most importantly I look at the leadership. If the founders are still the leaders, and if I believe that the founders will be there until they die or get really old, and if I believe the founders care about building timeless, excellent products above all else, then I'm willing to invest as long as the P/E isn't above 100.
This is my strategy because I believe the best tech companies will keep growing over the long term until technology completely transforms the world.
I think that many people believe that the current valuation isn't based on fundamentals as much as survivor (or Greater Fool) investing. These valuations are based not on revenues but how much the current investors will be able to sell their shares to some later investor. The issue becomes that once Facebook goes public investing tends to skew much more towards fundamental, which may cause a dip in the stock price. Facebook's current P/E somewhere between 70-110? (I'll source these numbers in a sec). This would indicate an extremely high growth company ie in the front of the hockey stick. I think many would start to argue that Facebooks growth is going to start to flatten out. They already say about 500M active users so thats 1/12 the worlds population their user base doesn't have much more room to grow (though increasing revenue per user still still probably has some room to move).
Personally as a small investor I'm staying away from Facebook when it goes public its too volatile (unless I can get pre IPO shares ;-) But at least an argument could be made that a short isn't a horrible play. There's a really good chance of Facebook's IPO starting extremely high and then seeing a significant dip a few months out of the gate as people start taking their money out.
P/E Numbers - 70B valuation (widely reported)
Earnings 1B - 600M.
P/E 70 - 116
http://www.msnbc.msn.com/id/41521349/ns/business-us_business...
http://www.computerworld.com/s/article/9203999/Facebook_s_le...