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3 ETFs Most Impacted by Facebook’s IPO
02/02/2012 11:58 am EST
These three ETFs will likely represent very viable ways for investors to invest in Facebook when the company’s high-profile IPO happens this year, writes Jared Cummans of ETFdb.com.
The rumors have been swirling for years about Facebook’s IPO, but now we’ll finally see the long-awaited IPO from the social networking giant. Even before yesterday’s filing, some new developments made this event very likely.
Other than unnamed sources confirming an IPO in early to mid 2012, the company’s private stock had been frozen for the past three days, a move that typically coincides with a filing to go public in the near future. ”Facebook and companies who do this don’t want to expose themselves to lawsuits related to the fact that some people had it before others and were able to trade on it,” Sam Hamadeh, CEO of private company research firm PrivCo, told Bloomberg. “The best way to protect yourself is to have no one able to trade.”
Early reports put the company as a member of the tech-heavy Nasdaq along with a hefty valuation topping $100 billion. That would have marked the largest IPO in history. It should come as no surprise however, given the massive global reach held by the company. The social network is available in multiple countries, multiple languages, and was home to over 800 million active users as of September 2011.
Alexa, a Web site which ranks the Web based on page views, users, and other metrics, notes that Facebook is the second most popular Web site in the world, with only Google topping the social network.
It was estimated that the firm raked in over $4.3 billion in revenues for 2011 and now looks to extend those gains to investors via this IPO. According to multiple sources, the IPO was due to launch between April and June of this year, but that time frame has now been narrowed down to May. Following yesterday’s filing, it can now take anywhere from three to four months for the SEC to review the documents and approve the order.
With the world’s largest IPO tentatively set to hit markets, it will certainly have a major affect on some popular ETFs, many of which will offer ways to make a play on Facebook as they will surely include the company once it does indeed go public.
See related: The Only IPO That’s Worth the Hype
After seeing some of the hefty volatility that newcomers like Groupon (GRPN) and Zynga (ZNGA) endured, many investors may feel more comfortable with a diversified play utilizing an ETF. Next, we'll outline three in particular that could be shaken up by Facebook’s landmark IPO.
PowerShares QQQ Trust (QQQ)
This ETF replicates an index that includes the 100 largest non-financial components of the Nasdaq. With over $26 billion in assets and an average daily volume (ADV) topping 35 million shares, QQQ is the seventh largest ETF in the world and ranks fifth by daily volume.
With QQQ utilizing a cap-weighting structure, Facebook could easily make its way into the top ten holdings if the company lists on the Nasdaq, as the predicted $100 billion+ valuation will put it above several of QQQ’s largest allocations.
Be advised that buying QQQ prior to the IPO could make for a safer way to play what will likely be a volatile debut for Facebook.
Social Media Index ETF (SOCL)
This one is a no-brainer. Tracking an index that measures the equity performance of the largest and most liquid companies involved in the social media industry, Facebook will surely get a large representation in this ETF. Considering that Google (GOOG) is the only top holding (ranked 7th place) with more than $100 billion in market cap, it would not be surprising to see Facebook overtake the number one holding. While it may not be bigger than Google upon its debut, it is a pure social media site and will dwarf the other holdings of this young ETF.
Nasdaq Composite Index Tracking Stock (ONEQ)
ONEQ tracks the Nasdaq Composite Index, which measures all Nasdaq domestic and internationally based common stocks listed on the Nasdaq stock market. This yields top holdings like Apple (AAPL), Microsoft (MSFT), Google, and a number of others. While Facebook is not big enough to take the top slot in this fund, it would likely secure a spot in the top ten and hold a significant weight for the overall product.
See also: Should You Trade High-Profile IPOs?
By Jared Cummans of ETFdb.com
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