Facebook Trading forecasts and signals

After the publication of the latest financial report, Facebook shares fell by more than 5%, despite the fact that the social network was once again able to demonstrate better results than expected in terms of both revenue and profit. The fact is that investors were alarmed by the figures for users: in the US, their number has almost not changed, but in Europe there was an outflow. This is quite disturbing news, because people from North America generate ARPU (average income per subscriber), which exceeds the values of other regions by five times.It is quite obvious that Facebook is the world's main social network, which, according to recent data, is used by 1.908 billion (DAU) people every day. It is already quite difficult to grow further: according to the results of the second quarter, the DAU indicator increased by 6.9% y/y. While MAU (the number of unique users per month) grew by 7.2% y/y. In the first quarter, the growth was 9.6% y/y. In the future, revenue growth will depend even more on the advertising policy of the platform.In the second quarter, revenue increased by 56% y/y, to $29.08 billion. Wall Street expected a figure of $27.89 billion. This was due to an increase in ARPU in general by 43% y/y, to $10.12: firms want to recapture losses associated with the pandemic and do not spare money for advertising campaigns. Most likely, this is a temporary phenomenon and the growth rate will significantly decrease in the coming quarters. ARPU for American users grew even more-by 45% y/y, to $53.01. ARPU outside of North America and Europe is equal to $4.16, and it is also growing at a slower pace – 39% y/y. Facebook will need a lot of time to equalize cash receipts and increase the share of these countries in total ...

Facebook's financial results were better than expected, although the pace of expansion of the active user base failed to surprise investors.Facebook's revenue for the second quarter increased by 56% y/y, reaching a record $29.08 billion. This exceeded not only the consensus expectations, which laid the indicator at the level of $27.85 billion, but also the most optimistic forecast of analysts surveyed by FactSet, which assumed a value of $28.76 billion. As expected, the main driver of growth was an increase in the average cost of advertising impressions by 47% y/y, and a secondary one was an increase in the number of advertising impressions by 6% y/y. Facebook's revenue in 2021 is increasing due to higher advertising prices due to high demand from advertisers. EPS, which was predicted at $3.04, in fact reached $3.61. This result was positively influenced by the operating margin, which increased from 32% to 43%, with a consensus of 38%.The average daily Facebook audience (DAU) increased to 1.908 billion (+6.9% y/y), the monthly audience (MAU) reached 2.895 billion (+7.2% y/y). These indicators fall short of market forecasts for the second quarter in a row. Investors expected to see values of 1.911 billion and 2.913 billion, respectively. Instagram Facebook's monthly audience of all its services (including WhatsApp and Instagram) was 3.51 billion, compared to 3.45 billion a quarter earlier. Facebook's global audience is growing exclusively due to emerging markets, with the Asia-Pacific region playing a special role. In the US and Canada, the DAU indicator remained at the level of the previous two quarters of 195 million. Moreover, in the first quarter of 2020, the indicator was the same. The lack of expansion of an active audience in such a mature market is quite understandable. The audience data in Europe is of little concern: the DAU indicator fell from 309 million to 307 million, while investors expected it to increase to 312 million. According to Facebook management, it is very difficult to predict the dynamics of the audience in the post-market time, since last year online activity was increased all over the world, and now we are seeing its normalization. In addition, the company's services face competition with Snapchat, Telegram and other communication applications, including iMessage, which is popular in the United States. In the context of slowing audience growth, the company relies on the introduction of new features and offers that will help keep user engagement at a high level. Earlier, the company announced that it plans to allocate $1 billion to support content creators.Management again showed caution when commenting on the prospects for business growth in 2021. It was noted that the App Tracking Transparency (ATT) policy in iOS 14.5 limited Facebook's revenue growth in the second quarter, and will create even more difficulties in the next. However, the consensus of expectations for revenue signals the insignificance of this effect. Management has not changed its plans for costs and investments for the current year: total expenses will amount to $70-73 billion, capital investments - $19-21 billion.During the conference call, Facebook CEO Mark Zuckerberg again focused on the development of VR/AR technologies. He noted that sales of VR devices are growing. Non-advertising revenue in the reporting quarter increased by 36% y/y, to $497 million. The head of the company announced that the next device offered to Facebook users will be smart glasses designed in conjunction with the Ray-Ban brand. However, this gadget will not be a full-fledged AR device, and the set of characteristics and functions is not disclosed.The target price for Facebook shares is $420. We still consider its shares attractive in the long term. However, in the short term, investors may take a wait-and-see position, since the company's revenue growth will slow down year-on-year, and the insufficient pace of audience expansion in the United States and Europe creates ...

Mark Zuckerberg has been actively selling shares of his company since 2016. As the founder of Facebook himself states, the money is sent to charity, but is this really the case?All in the same 2016, Zuckerberg and his wife founded the Chan Zuckerberg Initiative charity organization. At the same time, the billionaire promised to donate 99% of his Facebook shares to the development of education and medicine.  To date, Zuckerberg has already sold $ 15 billion worth of securities, and his share in the company has decreased from 28% to 14%. In general, Mark reduced his share evenly, but in 2018 he dropped shares by $5.3 billion, and then, since November 2019, there was a lull in his sales. Only a year later, Zuckerberg again began to sell off shares of his company and since then he has already sold them for $2.8 billion.  Where does all this fabulous money go?  According to Forbes estimates, out of 15 billion, the businessman put “only” 2.1 in his pocket. All the rest was sent to charitable organizations, mainly to his own Chan Zuckerberg Initiative foundation.By the way, Zuckerberg's fortune is still estimated at $127 billion, 98% of which remains in Facebook shares.  Is Zuckerberg the only one who sins like this?  Among the founders of large IT companies, it is very often practiced to sell large blocks of shares. Agree, it's stupid to have several tens of billions of dollars in your account and not use them. So, the founder of Amazon, Jeff Bezos, for 9 years after the IPO, reduced his share in the company from 42% to 24%. Google founders Larry Page and Sergey Brin also did not abstain and reduced their shares from 16% to 7%. Despite all this, their companies continue to grow and become more expensive every year.  ConclusionSelling shares among company founders is not always a bad sign. The money can be directed to charity, the development of new projects, personal needs, and so on.  You should not change your opinion about the company if its founder or managers sell a certain number of shares. They will not be allowed to speculate on the available information by the legislation, which very strictly controls this process.  That is why, before investing in shares of any company, it is better to focus on the fundamental indicators of its business, and also do not put “all your eggs in one basket” so that one paper does not affect the entire portfolio so ...

Since the beginning of 2021, Facebook shares (FB) have risen by more than 18%. This was also facilitated by the good figures for the first quarter of this year. The social network turned out to be one of the few technology companies whose financial report did not disappoint investors, but the potential for further growth in quotations looks limited. The shares are traded at Forward P/E - 26x. Given the dynamics of quotations, enthusiasts may have the opportunity to purchase FB at more attractive prices.Instagram Facebook's main risks have been known for a long time: Apple's privacy policy update (iOS 14), which will negatively affect marketing campaigns on Facebook and Instagram, as well as competition from other social networks. In addition, it is worth highlighting the weak growth in the number of users in the United States (they bring the most revenue) and the expected decline in margins due to the high costs of improving the platform in 2021 to $70-73 billion. All this can have a negative impact on EPS.Let's take a closer look at the growth of DAU (Daily Active Users): at the end of the first quarter, the indicator increased by 8% y/y, to $1.88 billion. This happened due to the connection of new users in Asia and the” rest of the World". At the same time, in the United States and Europe, there is stagnation: for example, if in the second quarter of 2020, the DAU in the United States and Canada was 198 million, then in the first quarter of 2021 – 195 million. As already mentioned, residents of these regions are monetized at the highest rate: Americans account for 10% of the total customer base and about 47% of all ...

The American company Facebook, which owns the world's largest social network of the same name, published a report for the first quarter. According to the report, all quarterly financial indicators of the company exceeded the forecasts of economists. Annual sales growth was recorded at 48%. The number of active users of the network amounted to 2.85 billion people, an increase of 10% compared to the first three months of the previous year. The experts' forecast assumed this figure at the level of 2.83 billion users. Quarterly revenue was $26.2 billion, also beating market expectations. Net income for the quarter jumped to $9.5 billion. On a per-share basis, it was $3.3, while economists had expected it to be $2.34. The price for advertising in the social network has increased on average by 30% over the year. The number of ads shown in April increased by 12% year-on-year. After the release of the quarterly reports, Facebook shares on the premarket reached $331.56, having increased in price by almost 8% over the day. Since the beginning of the year, the company's shares have increased by ...

SaaS is a cloud technology that allows you to use software online without installing it on a computer. The abbreviation SaaS stands for software as a service — software as a service.SaaS resembles rental housing. You rent an apartment with furniture, appliances and even dishes for any period. You live there, and its owner is engaged in maintenance and repair.Most SaaS platforms, along with access to software, provide data storage services (projects, information, letters). But there are services where projects are not saved. In them, the work is organized according to the principle: worked — downloaded — left.ContentSoftware by subscriptionSaaS examplesAdvantages and disadvantages of SaaSA key factor in the development of SaaSWhat is a cloud service and why is it so calledData security in cloud servicesWill SaaS be able to completely replace local softwareSoftware by subscriptionSaaS services provide subscription services. Usually, such companies offer different tariffs, the cost of which increases along with the number of available tools and the size of the cloud storage.On many platforms, you can collect your tariff as in the constructor and pay only for the services that you use. Other services offer several formed tariffs for different tasks and requests.It is convenient that you can not pay for all the features of the service at once. Needs have changed — change the tariff.In addition, almost all services have a trial period or a demo tariff with reduced features for getting acquainted with the product.SaaS examplesSaaS products have been known for a long time. The first representatives of this model are considered to be mail services.Today, according to the SaaS model, they work:Text, image and video editors (GoogleDocs, Figma, Canva, Adobe);Social networks (Facebook, Linkledin, Twitter).Video and audio hosting services (YouTube, SoundCloud).CRM systems (Bitrix24, Salesforce).E-commerce systems (BigCommerce, Shopify).Site builders (WiX, Setup, uCoz).Enterprise Management Systems (1C: ERP, SAP Business One).The Unisender mailing service is also a SaaS service that provides tools for email marketers by subscription.There are whole complexes of SaaS services. For example, Google and Yandex is the postal service, document editors, video applications, tools, online marketing, drives to store information.Advantages and disadvantages of SaaSCloud technologies are convenient to use, and this is not the only advantage of such services.Advantages of SaaS:Low price. A software subscription costs much less than the purchase of a license.The ability to work together. In many services, several performers can work on one project at the same time.Low probability of data loss due to technical problems. It is not terrible if the computer freezes during operation, the lights are turned off or you forget to save. In SaaS, data is saved immediately as it is introduced.Account availability from different devices. You can start doing something in the office, and then go to a meeting by taxi and continue working from the phone.Regular updates. Cloud services are constantly updated by a team of specialists without any effort on the part of users.Reducing the load on the user's gadgets and equipment. You do not need to use memory to install many different programs — a browser is enough. There is also no need to buy expensive powerful equipment — the entire load falls on the servers of the service provider.But even such a popular model has some disadvantages:High price in the long run. Using a paid service for a long time may be more expensive than paying for licensed software once.The risk of information loss. All data is stored with the provider. If the servers stop working or are hacked, you may lose valuable information.Low operating speed at high loads. The capabilities of the service provider's equipment are not unlimited, if a large number of users are connected to the cloud at the same time, the speed of work decreases.A key factor in the development of SaaSRemember how we installed software before the advent of SaaS — we searched for hacked programs from friends or downloaded keygen on the Internet. Those who could afford it paid for the license.Today, we are already taking full advantage of the capabilities of cloud services, without even thinking about how much they have made our lives easier. Now we can close the laptop, come to work, enter the username and password to log in to the account on the computer and continue working from the same place.Since SaaS is based on the principle of providing services via the Internet, the development of cloud technologies is directly related to the history of the world Wide Web.The abbreviation SaaS appeared in 2001. Since that time, the popularity of cloud technologies has been growing along with the speed of the Internet.The emergence of high-speed networks, wi-fi and the constant improvement of mobile communication standards invariably entails new upgrades in the field of SaaS. The throughput of services, the speed of information processing, the volume of storage are increasing, the tools are becoming more complex and expanding.What is a cloud service and why is it so calledSaaS is a cloud service, the highest form of cloud technologies, which have their own hierarchy:IaaS is an infrastructure as a service, for example, a virtual data center or a virtual server.PaaS is a platform as a service, or a cloud development environment.SaaS - software as a service, or a ready-made application for work, which is located in the cloud.All together, it is called XaaS — "everything as a service", where X is considered as an unknown variable, instead of which you can substitute the desired letter.Cloud computing is called computing that is performed simultaneously on several servers connected by a network. In this scenario, data processing and storage takes place in a place that is difficult to imagine as something concrete — it is ephemeral and elusive, like a cloud.  The user cannot touch it or see what is hidden inside.A less popular name for cloud technologies is cluster technologies. Cluster translates as a swarm (of bees), a cluster, a brush (of grapes). This word is used in Internet technologies to refer to a group of computers connected together through a network.Data security in cloud servicesWe actively use SaaS services for work and personal tasks. Photos and correspondence are stored in mailers and messengers, projects are stored in application repositories, and information about costs and cost is stored in the enterprise management system. All this is our data, which is unique and highly valued.An important principle of cloud work is that the user's information belongs only to him. Self-respecting SaaS services provide customers with the ability to export data and leave the platform at any time. But not everyone does this. Therefore, before settling on a cloud service, it is necessary to study this issue.SaaS services are constantly working on the security of customer data, introducing new means of protection. But the professional community has not yet come to a consensus on the reliability of SaaS. Despite all the efforts of providers, the risks remain. Moreover, even large companies are not immune from them.The threats to which customer information is exposed in the cloud can be divided into three categories.Physical data lossUsers from the 2000s have repeatedly found themselves in situations where a broken hard drive or a washed USB flash drive entailed a lot of problems associated with the loss of information.In cloud storage, such situations are practically excluded. Several servers are used for calculations at once, data is stored in different places, there are backups. Therefore, a technical malfunction of one or more servers does not lead to data loss.If the server is damaged, the technical team of the service will work in emergency mode until the problem is fixed.Hacker attacksHackers break into cloud servers for various reasons: to collect information about user behavior, to damage large businesses, to steal unique data, assets, money. An attack on the cloud is sometimes organized by competitors who want to undermine the reputation of the service.In 2014, there was a major scandal related to the leakage of Apple user data. A specialized iCloud storage was hacked, and personal information was available to everyone. After this incident, Apple seriously took up the security issue and installed several additional shields: password verification, two-factor authentication, data encryption.There are many such examples in the history of SaaS, and each incident entails the emergence of new ways of protection. Today, a user's account is an impregnable fortress, but black programmers continue to look for ways to get inside.Illegal actions of the owners or employees of the SaaS serviceOne of the fears of SaaS users is what if my data is sold by the service itself?The second level of legal protection is an agreement between the service provider and the client. To use the service, we sign a public offer agreement (check the box without reading it). It is here that it is stated in which cases the service provider company has the right to use your data. This is usually a standard document. However, owners can leave loopholes for themselves to study user behavior.But even such a serious protection does not exclude unpleasant situations. In 2018, the data of 87 million Facebook users were transferred without their knowledge to an analytical firm that used the information to promote Trump's election campaign and the PR campaign for the referendum on Britain's exit from the European Union. It is believed that all this happened with the tacit consent of the Facebook management. The company lost about $ 60 billion in a few days due to a drop in shares, the "Delete Facebook" campaign swept through Twitter, the social network experienced a serious reputational crisis. In 2019, a US federal court ordered Facebook to pay a 5 billion fine and review the terms of protecting the privacy of its users.Such incidents cause serious damage to cloud service providers, so they are trying their best to protect user data. But, as they say, God protects the safe.How to secure your data:Try not to store information in cloud services, the theft of which will cause serious problems, or encrypt it additionally. You can use both ordinary archives with passwords, and special software for encrypting data.Store information on several services at once or duplicate it on physical media.Use all the opportunities to improve security: do not be lazy to come up with strong passwords that are different for all sites; use two-factor authentication; put passwords on gadgets and computers.Carefully read the contract, before signing it, study all the information and reviews about the provider with whom you plan to cooperate.Install a good antivirus and antispyware.Will SaaS be able to completely replace local softwareSaaS services have made our life easier. There are even devices on the market where only browsers are installed, and all the rest of the software is available from the cloud (for example, a Chromebook laptop).It is not surprising that cloud technologies have been experiencing an unprecedented boom in recent years. In 2019, the profit from the sale of services for this model worldwide increased by 26% compared to 2018.In 2020, the development of SaaS was affected by the coronavirus pandemic and the transition of many companies to remote work. Key cloud giants have doubled their revenues during the year, and by 2025, the value of the entire cloud technology market is projected to double.SaaS services have seriously reformatted our lives. The creation of virtual offices made it possible to introduce a remote mode of operation. The State of Remote Work global survey in 2018 showed that before the quarantine, employees of 16% of companies around the world worked completely remotely, 40% of employers offered a choice. For comparison — in 1995, the number of organizations with the option of remote work was only 9%.After the quarantine began, entire industries moved to the cloud — IT, design, journalism, marketing and other areas for which the constant presence of an employee in the office is not necessary. The trend of 2021 is the rejection of offices, announced by a number of IT companies.But not everyone can afford to completely switch to SaaS technologies. For example, professional work with sound and video is still carried out on local software — a sufficiently powerful cloud service has not yet been created for this purpose. Adds a fly in the ointment and the fear of data loss when an account is hacked.Therefore, experts predict that in the foreseeable future, SaaS platforms and physical media will work in tandem, and we will be able to choose when it is more convenient to use local software, and when it is more convenient to use subscription ...

IPO (Initial Public Offering) - the initial placement of securities on the market for sale to a wide range of investors. After the IPO procedure, the company acquires the public status. An investor's participation in an IPO is different from the usual way of buying shares on the stock exchange.Every year the number of IPOs increases, which is quite understandable from the point of view of the market. These are programs of global financial regulators to support companies in the post-crisis period (low lending rates, tax incentives, financing programs, etc.). These are also social support programs in the form of unemployment benefits. In some countries, the amount of benefits does not only cover vital needs. Sooner or later, all the liquidity released into the economy enters the stock market as a significant link in the entire world economy. Therefore, firstly, an increasing number of companies are reaching the level of possible entry into the initial placement. Secondly, knowing about the high purchasing power of investors, even "immature" businesses go to the IPO to attract even more finance for further growth.Access to the stock exchange can be realized by a classic IPO or by a "workaround" through a merger with SPAC companies. In 2019, 233 companies in the US market became public, in 2020 – 481, which is an absolute record since 2000. In 2020, the companies raised about $263 billion for an IPO, setting a new record. Now there are much more IPO transactions. And a huge number of investors want to take part in the IPO – to benefit from the successful entry of the company into the market as soon as possible. We will consider how to do this and what risks an investor faces in our article.In this article, we will consider:What is an IPO?Ways to participate in an IPO:Participation in the IPO through brokers.Participation in the IPO through the purchase of an ETF.Risks of investing in an IPO.The procedure for participating in an IPO.What is an IPO?IPO is a process that results in the acquisition of the "public" status by a non-public company. As a result, a variety of investors can become owners of its shares (shares) – from private to large institutional, including foreign funds ("Hedge funds - what is it in simple words"). But the main purpose of the issuer's entry into the stock market is to obtain financial resources that are directed for various purposes. Often, the issuing company entering the IPO, most often already has an efficient business, and the attracted capital gives it the opportunity to make a significant breakthrough in expanding production and conquering a wider market segment. Or capital is raised for a new investment project, which serves as the basis of the business and, in combination with the attracted substantial funds, allows the new company to become significant in the market.IPOs come out of different sizes and the history of the company's existence. For example, a successful, promising company with a large staff of employees, with many years of experience, decides to become public, that is, to significantly increase the list of its shareholders. To do this, the shares of this company are issued and transferred to the exchange. There is also a different situation when a newly created young company with a promising idea tries to raise funds for its quick start and development, and in this case also goes to public auction.When entering the stock exchange for the first time, the company undergoes a lot of detailed checks. The securities, having appeared on the market, are bought up by investors with the intention of reselling them to other investors later.Read more: Who are Market Makers and what are they doing on the market?The initial placement of shares is carried out by the issuing company itself through underwriters or market makers. We wrote in more detail about the IPO procedure, the stages of preparation for it and the stages of its implementation in our article "IPO of a company - a mechanism, examples, strategies". In the same article, we will focus on the issues of the value of an IPO for an investor.The investor's participation in the IPO procedure means the right of priority repurchase. Investors get the opportunity to buy shares at the starting price. Immediately after the initial placement, a part of the shares that were not purchased by investors enters free circulation on the market, and the value of the share acquires an objective assessment by the market – its price is subject to market volatility. Sometimes it can be a vertical increase in quotations (the investor makes a profit), and sometimes a drop in the exchange rate value (for the investor, this means a local loss). According to world statistics, most IPOs are successful for investors. But the risks for investors are high, including in the case of successful IPOs. We will tell you about this later.Read more: Volatility: types, how to track and how to useWays to participate in an IPOOnly a few investors can participate in an IPO independently, as an individual, since the threshold for participation in such transactions is very high. Such major stock market players with world fame as Warren Buffett or George Soros can independently buy out a pool of shares during an IPO. For other investors, there are other ways:Participation in the IPO through brokers.Participation in the IPO through the purchase of an ETF.Let's look at the selected methods in more detail, highlighting the pros and cons of each.Participation in the IPO through brokersA retail investor can participate in an IPO through a broker that consolidates the funds of many investors into a large amount and thus buys a significant package of initially placed shares. Then he distributes it among the participants-investors in proportion to their investments and receives a commission for this.Read more: Stock market Broker: how to choose it and how to work with itNot all brokers provide an IPO participation service.  Having a brokerage account with a specific broker, an investor can submit an order to participate in a specific IPO. Information about the proposed IPO with an indication of the date is published on the broker's page. At the same time, each broker independently determines the conditions under which its clients are allowed to participate in the initial placement of securities, including the amount of the commission.The terms of participation in the IPO are determined by each broker independently. Along with different basic conditions for working with a broker (the minimum amount, transaction fees, the cost of margin leverage), additional requirements are set for an IPO:Entrance fee.The minimum amount of participation.Exit fee.Advantages of participating in an IPO through brokers:There is one advantage here, but it is the key one. The participation threshold for an investor becomes significantly lower than that determined by the underwriter (the operator preparing and carrying out the initial placement), which allows a large number of participants to participate in the procedure. Otherwise, the purchase can be made either if there is a large capital, or after the placement, when part of the profit will already be worked out by the stock.Read more: Leverage on the stock marketDisadvantages :The presence of significant commissions, in addition to the standard broker's commission for the transaction: commissions for entering the IPO and for exiting it, some brokers take a commission for profit. Some brokers have a total commission of more than 7.5%.The presence of the IPO entry threshold, which, although lower than the threshold set by the underwriter, still remains relatively high and does not allow anyone to participate.The need to freeze a large amount to participate in the IPO, despite the fact that it will be only partially satisfied. By the way, the commission will also be calculated from the entire amount of the application, and not from the satisfied amount.If you, as an investor, do not meet the requirements of the broker, for example, you cannot ensure that the necessary amount is available on the account or do not have the status of a qualified investor, you can still participate in initial placements in the following two ways.Participation in an IPO through the purchase of an ETFDetailed information about ETFs, as well as the advantages and disadvantages of investing in them, is described in our article "ETF funds". Along with ETFs specializing in certain industries, there are special ETFs for IPOs, consisting of shares of companies that are going to conduct an initial public offering on the stock exchange, or have recently conducted it. The principle of selecting shares depends on the specific fund. Some ETFs invest in the early stages of an IPO, while others buy shares of companies a few days after the placement. At the time of writing, 8 ETFs are traded on the US market, which collect total assets of $2.67 billion under management.Advantages of participating in an IPO through an ETF:They open access to the IPO to anyone who has an amount of $25 or more.They are managed by professional investment companies.Disadvantages :Just like all ETFs, they do not leave the investor the opportunity to select shares. Together with good stocks, you buy bad ones and bear the cumulative risk on them. The expense of one fallen stock from the pool can cover all the income received from the rest. There are a number of methods for selecting ETFs, but none of them will reduce the risks of the instrument itself.Read more: How to invest in stocks and what you need to knowRisks of investing in an IPOIn fact, an IPO is an investor's bet that the company will grow in value. There are a lot of such stories among IPOs, there are also record holders for profit.One of the most anticipated and then successful IPOs of 2020 was the initial public offering of Airbnb Inc (NASDAQ: ABNB), which offers users a platform for short-term rental of apartments and houses. The company's shares were issued to the market at a price of $68 in December 2020. Within two weeks, the shares rose by 142.3% to the level of $168.25; then they fell to $140, which was still very profitable.Arbnb The total profit of the investor depends on the difference in the share price at the start and at the time of sale. Therefore, it is profitable for an investor to buy shares of the issuer's initial placement at the lowest price. For its part, the issuer, by placing shares, expects to attract maximum profit, that is, it hopes to sell shares at the maximum price. There is a direct conflict of interests.Read more: About NASDAQ Stock ExchangeIf a new, previously unknown company enters the market, its chances of selling shares at a high price are low. In order to improve the situation, the underwriters conduct a so-called road-show, a presentation tour to familiarize potential investors with the state, personnel, product and prospects of the company. This is done to attract maximum attention, so in the process of such a show, all the advertising and marketing techniques available today are used. It happens that the share price overheats during the road-show, and subsequently, immediately after the placement, the shares "fly" down in price.Read more: Bulls and bears, as well as other animals on the stock exchangeAnother reason for the fall in shares is the underwriter's choice of the time of the initial placement. For example, a company from a certain sector may enter the market at a time when the number of competitors is low and the overall investment interest in the industry is high. As a result, the output will be made at a high price. But if the company does not meet the expectations of investors related to its product, service, market segment, then the shares also risk seriously falling in price in a short period after the placement.There have been failures in the history of IPOs related to technical failures on the exchange itself, or due to unsuccessful actions of underwriters. An example of an extremely unsuccessful IPO due to an error by the underwriters is the history of Facebook shares in May 2012. Immediately before the placement of shares, it was decided to increase the issue of shares by 25% and increase the starting price to the maximum value of $ 38 per share. These two actions led to the fact that after the start, stock prices fell by more than 20%.Facebook Another striking risk parameter for an IPO is allocation. The term allocation means the percentage of satisfaction of the application for the purchase of shares at the initial placement. It is usually quite small, since often the demand for shares of a particular issuer exceeds the supply. One of the criteria for stable earnings in the IPO market is a high percentage of allocation, that is, the percentage of the amount invested in the IPO by which you will be approved for the purchase of shares of the company. The higher it is, the greater your profit when the company's shares grow in price.Example: You want to buy shares of the company BLI in the amount of $10,000 at the IPO. We have submitted an application to the broker for this amount. After the start of trading, you had only $500 worth of shares in your portfolio. So, the allocation for you is equal to 5%. The balance of $9500 will be returned to your deposit, and you will be able to use it again.The significance of this risk was demonstrated during the initial public offering of Airbnb shares. The allocation for some investors was 0%; moreover, the participation threshold for many of them was an impressive amount of about $10,000. During the placement process, according to the participants, first information came about an increase in the starting price from $68 to $73 per share and the need for willing participants to re-submit applications with a new price. But even after that, the shares did not come. Those investors who really wanted to buy these shares were forced to buy them after entering the open market at a price above $110 per share. Such manipulation created the conditions for a rise in the share price, but, of course, had a negative impact on the final profit of the participants.IPO participation ProcedureThe initial placement of shares of American issuers takes place in dollars, Russian – in rubles. An investor who wants to participate in an IPO can register on the platform of the selected broker, transfer rubles to a brokerage account, convert them into dollars if necessary and start investing.You can start investing in an IPO with the threshold amount set by the broker, but, in practice, an application for participation in an IPO is very rarely 100% satisfied, even if you have a capital of $1 million. The reason is the presence of an allocation, which we wrote about above in the paragraph on investment risks. This factor is one of the main problems of the IPO. This means that even with an input capital of $100,000, which will be frozen in your account from the moment of the application for participation, you may be issued securities for only 5-7 thousand, and the remaining amount will not be satisfied, that is, invested. It will remain on your account and will be unfrozen. But at the same time, the commission for entering and exiting will be deducted from the entire declared amount.The investor cannot immediately sell shares purchased during the IPO process. This is a fee for exclusive conditions for entering the promotion. The Lock Up period is a period of time during which an investor who has received shares in the IPO format cannot sell securities to the market. It usually has a duration of 3 to 6 months, the specific duration is set by the broker. The task of the blocking period is to avoid the volatility of the share price on the market and the possibility of a sharp drop in quotations if some shareholders start selling securities en masse in the first days after the issue. This situation is quite possible if large holders (funds, banks) start doing this, not individual private investors. During the Lock-Up period, the price of shares changes, as the remaining shares (not sold out by large players) enter the free market and begin to become more expensive or cheaper, being subjected, like all shares, to the laws of the market. The date before which you cannot sell shares will be indicated in your personal account in the line related to a specific promotion.Among IPOs, there are so-called "forward contracts", when an investor is offered to sell shares earlier, but at a price lower than the level that the shares have reached by this time. The investor needs to decide for himself whether he is satisfied with the yield received by this moment and is ready to sell, or wants to keep the shares. In the second case, it will be necessary to hold the shares now until the end of the Lock Up period.ConclusionThe process of participating in an IPO is a very risky type of investment. The risk of acquiring shares is even higher, because it was bought by a friend or recommended by an unknown person in an article published on the network. This is why there is a restriction in the admission of unqualified investors to the IPO. The selection of shares for acquisition should be carried out independently, based on a comprehensive analysis of the issuing company. To get a good income in investments, an investor needs to follow one main rule – to be financially educated. This is the basic guarantee of success and insurance against losing ...