Facebook's pending IPO may seem like another sign of tech exuberance, but the prospect of a looming NASDAQ monster may actually be a headwind for the tape in the immediate term, according to the sharp and loquacious David Garrity, a principal at GVA Research.
"Traditionally if you go back and look at how tech incumbents had performed back in the late 1990's, early 2000's when we had the last large internet or technology public IPO financing bubble, clearly institutional money or hedge funds will be allocating money away from established names to put it to work in some of these newer names that are coming out," Garrity notes.
This not the late 90's, there is no internet "bubble." Facebook is huge and profitable; two things Pets.com never had going for it. The weird thing about Facebook's public debut is that it's taken so long.
The headwind isn't from the quantity of IPOs as it is the enormity of Facebook's market cap, which Garrity says will probably be in the $100 billion area. It's unquestionably a big price-tag but the value of the shares actually trading will be a fraction of the headline.
If, as Garrity believes, institutional money is going to be holding back tech investments in established names, anything social network-related will suffer once investors can buy the company that made social networking mainstream. That being the case, the real victims of the Facebook push will most likely be social networking derivatives like Zynga (ZNGA) and Linkedin (LNKD), two stocks that don't need any help from a massive IPO in order to underperform.
Facebook's IPO is currently rumored to hit the market in April of this year. As far as investors in technology are concerned, pushing the date up or delaying it until the "first of never" might be preferable.
What sort of impact do you think Facebook's IPO will have on the broader tech sector? Let us know in the comments section below.