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Facebook IPO: Five things to know

Facebook is set to begin trading today on the Nasdaq index. The social network company is ringing the opening bell remotely from its headquarters in Menlo Park, Calif.

Priced at $38 per share, the initial public offering is $104 billion, the third-largest in U.S. history. Here are five things to know about Facebook’s IPO:

1) It’s geared toward institutional investors: You’ve probably seen this so many times that you’re sick of reading it. But it’s true: this initial public offering is mostly for institutional investors who’ve got first dibs on the shares and are likely looking to make money quickly. If you’re a retail investor, don’t count on getting in at the opening price.

2) Analysts say Facebook is overvalued: Taking a look at the all important price to earnings ratio (that’s the price of each share as compared to the earnings per share), Facebook is trading at almost 100 times earnings, said Motley Fool senior analyst Joe Magyer.

So when it comes to bang for your buck, Facebook isn’t the best bet. “That’s a rich price when you could buy Apple at 13 or Google at 19,” he said.

3) If you buy, be strategic: If you do really want to get a piece of Facebook, be strategic about it. Don’t use your nest egg to buy up as many shares as you possibly can. Instead, set aside some money that you’re willing to lose to test the waters.

4) It could be big: Facebook is expected to see a big first-day pop based on the excitement surrounding the IPO. Think LinkedIn, which priced its shares at $45 and then blew past all expectations to close at $94.25 after hitting a first-day high of $122.70. The stock has had its ups and downs since then, but is still trading over $100 per share just over a year later.

5) It could be not-so-big: Then again, Facebook — which is facing questions about the sustainability of its revenue growth — could also pull a Groupon. Or a Zynga. These companies also had highly anticipated IPOs that fizzled quickly.

Zynga, which opened at $10 per share was trading up in pre-market on Thursday, likely thanks to its close association with Facebook, but was still at $8.53 per share.

Groupon, meanwhile, priced at $20 per share and was trading at $12.55 in pre-market trading Thursday. The firm, as Bloomberg reported, has lost half of its value since its IPO and has faced questions about its accounting measures as well as concerns that it doesn’t know how to profit from its growth.

Related stories:

Facebook’s market debut draws criticism from lawmakers

Facebook’s IPO: What does it mean for you?

Slate: The mystery of the vanishing IPO

Hayley Tsukayama covers consumer technology for The Washington Post.
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