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| 61 | Apple is the world's most valuable company. The Dow Jones industrial average is probably the world's best-known stock index. So don't they deserve each other?
Consider this: If Apple had been added to the Dow in June 2009, the last time there were serious rumors that it would happen, the average would be about 2,500 points higher than it is today and well above its all-time high.
Paul Hickey of Bespoke Investment Group, which crunches numbers about the markets, says the Dow would be at 15,360, about 1,200 points above its record of 14,164, set in October 2007. The Dow closed Wednesday at 12,835.
Not only would investors be perkier, but everyday Americans watching the Dow set one record after another would probably feel wealthier. That might inspire them to spend more money and help the economy grow faster.
But if you think the time is right for an Apple-Dow marriage, don't check your mailbox for a wedding invitation. Apple, which redefined how people listen to music and reinvented the cellphone, is simply too hot for the Dow.
In 2009, when a bankrupt General Motors and a hobbled Citigroup were booted from the Dow and Apple was talked about as one replacement, Apple stock traded at about $144.
, it closed at $569. Because of how the Dow is calculated, Apple would dwarf the other stocks in the average and distort the Dow from its purpose -- which is to reflect the broad economy, not represent the hottest stocks.
A big one-day gain by Apple, like a $50 jump after it reported blockbuster earnings last month, would send the Dow higher by hundreds of points. Similarly, a big drop would suggest the market was in more trouble than it really was.
The Dow comprises 30 stocks. It is weighted so that a $1 move by any stock, no... newsfactor.com » | | 62 | He famously wears a hoodie, jeans and sneakers, and he was born the year Apple introduced the Macintosh. But Mark Zuckerberg is no boy-CEO.
Facebook's chief executive turned 28 on Monday, setting in motion the social network's biggest week ever. The company is expected to start selling stock to the public for the first time and begin trading on the Nasdaq Stock Market on Friday. The IPO could value Facebook at nearly $100 billion, making it worth more than such iconic companies as Disney, Ford and Kraft Foods.
At 28, Zuckerberg is exactly half the age of the average S&P 500 CEO, according to executive search firm Spencer Stuart. With eight years on the job, he's logged more time as leader than the average CEO, whose tenure is a little more than seven years, according to Spencer Stuart.
Even so, the pressures of running a public company will undoubtedly take some getting used to. Once Facebook begins selling stock, Zuckerberg will be expected to please a host of new stakeholders, including Wall Street investment firms, hedge funds and pension funds who will pressure him to keep the company growing.
Young as he may seem -- especially in that hooded sweatshirt -- Zuckerberg will be about the same age as Michael Dell and older than Steve Jobs when those two took their companies, Dell Inc. and Apple Inc., public. In his years as Facebook's CEO he's met world leaders, rode a bull in Vietnam while on vacation, started learning Mandarin Chinese and as a personal challenge, wore a tie for the better part of a year.
Facebook, of course, got its start in Zuckerberg's messy Harvard dorm room in early 2004. Known as Thefacebook.com in those days, the site was created to help Harvard students -- and later other college students -- connect with one another... newsfactor.com » | | 63 | Responding to extraordinary demand, Facebook said Wednesday that it would sell more stock in the company's initial public offering. But ahead of the IPO, a debate emerged between two of the nation's largest automakers: Does it pay to advertise on the social network?
General Motors, the nation's largest automaker, said it would abandon Facebook ads after concluding they were ineffective. At the same time, Ford reaffirmed its commitment to Facebook, saying their relationship was stronger than ever.
The direct financial impact of GM's move is minimal for Facebook, but the decision drew attention to the network's advertising system, which some observers regard as immature.
In a regulatory filing Wednesday, Facebook said it would add 84 million shares, worth up to $3.2 billion, to the IPO, which is shaping up to be the decade's hottest. The company's stock is expected to begin trading Friday on the Nasdaq Stock Market under the ticker symbol "FB".
Almost half of the additional shares come from investment firms DST Global and Tiger Global. Goldman Sachs is doubling the number of shares it is selling. Facebook board members Peter Thiel and James Breyer are also selling more shares.
Since all of the additional shares come from insiders and early investors, the company won't benefit from their sale.
"It certainly does raise the question: How much higher could the stock go if institutions who know the company well think this is a good price to sell?" said Daniel Ernst, an analyst with Hudson Square Research.
On the other hand, he said, investment firms only make money by selling their stakes, and they have bills to pay. So the fact that they are selling more is only a limited indication of their confidence in the company.
The news comes a day after Facebook raised the expected price of the stock to a range of $34 to... newsfactor.com » | | 64 | Regulators are examining whether Morgan Stanley, the investment bank that shepherded Facebook through its highly publicized stock offering last week, selectively informed clients of an analyst's negative report about the company before the stock started trading.
Rick Ketchum, the head of the Financial Industry Regulatory Authority, the self-policing body for the securities industry, said Tuesday that the question is "a matter of regulatory concern" for his organization and the Securities and Exchange Commission.
A spokesman for Facebook Inc. said late Tuesday that the company had no comment. In the meantime, Facebook stock fell $3.03 on Tuesday to close at $31 and has now fallen $7, or more than 18 percent, from its offering price of $38.
After going as low as $30 a share in premarket trading Wednesday, shares were up to $31.40 before the bell.
The top securities regulator for Massachusetts, William Galvin, said he had subpoenaed Morgan Stanley. Galvin said his office is investigating whether Morgan Stanley divulged to only some clients that one of its analysts had cut his revenue estimates for Facebook before the stock hit the market on Friday.
The bank said late Tuesday that it "followed the same procedures for the Facebook offering that it follows for all IPOs," referring to initial public offerings of stock. It said that its procedures complied with regulations.
The questions about the role played by Morgan Stanley, the lead underwriter for the deal, add to the confusion surrounding Facebook's IPO. In the most hotly anticipated stock debut in years, the offering raised $16 billion for the social networking company, valuing it at $104 billion
On Tuesday, Robert Greifeld, the CEO of the Nasdaq Stock Market, acknowledged to shareholders of Nasdaq's parent company that "clearly we had mistakes within the Facebook listing."
The stock debut was delayed more than half an hour Friday because of technical problems... newsfactor.com » | | 65 | If you were thinking of picking up a few shares of Facebook last week, when it went public at a price of $38, you might be seriously tempted now that the stock has fallen $7 in two days.
But forget the dramatic drop. Investors should focus on the only question that matters: How much money will Facebook earn over the next several years, and is that enough to justify its market value right now?
The conclusion is hard to escape: Facebook might be a bargain someday, but not now.
Though it's a rough guide, one way to value a stock like Facebook is to divide its price by its annual per-share earnings. The result is the price-to-earnings ratio. A higher ratio suggests a stock is expensive, and lower suggests it is cheap.
When Facebook set its offering price at $38, the ratio was high -- more than 100 times its per-share earnings last year. It's still high, at 85 times earnings per share, even after a two-day drubbing left it at $31 a share.
The Nasdaq composite index of technology stocks trades at 15.7 times last year's earnings, according to FactSet, a provider of financial data. Apple trades at 13.6 times and Google 18.2 times.
Of course, investing isn't as simple as price-to-earnings ratios. Some companies grow their earnings faster than others, turning a high ratio -- and a seemingly expensive stock -- into a low ratio and a cheaper stock.
If you just looked at Facebook's earnings growth last year, an impressive 65 percent, you'd think it's just such a company.
If Facebook can keep up that pace, its $1 billion in earnings last year will be $7.4 billion in 2015. That would be enough to bring Facebook's ratio more in line with Apple's.
But that's with the stock not rising from $31. If you assume the stock... newsfactor.com » |
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