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Notre Dame Expert Tim Loughran: Facebook IPO can wait

by Carol Elliott

March 19, 2010

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Facebook’s IPO waiting game makes sense from a market standpoint, says Tim Loughran, finance professor at the University of Notre Dame.

“If Facebook doesn’t need the money at the present moment, and the stock market rises in the next few years, Mark Zuckerberg will have been smart to hold off,” says Loughran, an expert in equity investing. “However, if the S&P 500 Index drops in value in the future, the delay could lead to his firm selling at a much lower multiple.”

Facebook CEO Zuckerberg recently told a gathering of press and advertising partners that he’s in no rush to take the social networking site public. He will eventually, though, because that was the agreement with investors and employees.

Meanwhile, interested investors and analysts have speculated that the market capitalization could reach anywhere between $35 billion to $59 billion if the offering is made in 2011, with its value climbing to $100 billion by 2015.

“As always, the market will be looking into the future,” says Loughran. “The higher the market participants value the future cash flows for Facebook, the higher will be the company’s value. Being in a sector with high growth prospects will certainly help increase the valuation of Facebook.”  

Loughran’s academic research has concentrated mostly on equity investing, and his work has been published widely in the top journals of the field, including the Journal of Finance, Journal of Financial Economics, Review of Financial Studies, and Journal of Financial and Quantitative Analysis. Research areas explored by Loughran include the long-run performance of new issues, payment form in corporate acquisitions, value versus growth investment strategies, and how a firm’s location affects its liquidity and capital structure.

Contact Tim Loughran, finance professor at the Mendoza College of Business at Notre Dame, at (574) 631-8432 or loughran.9@nd.edu.