Thursday, May 17, 2012

The Facebook IPO - All About $100,000,000,000 or You and Me?

A simple answer to what the Facebook Initial Public Offering is, it’s about $100,000,000,000. Of course, simple answers don’t normally satisfy. So how about a complex answer, explained somewhat simply, on the eve of this historic IPO.

The Facebook was launched in February 2004 by Harvard undergrads led by Mark Zuckerberg. Their main focus was to provide a facebook (college speak for a student photo directory) for Harvard University. Zuckerberg began writing code, enlisted the help of trusted, capable, fellow-students and well, here we are on the eve of history.

Why is Facebook so fascinating? It depends on what importance Facebook has in one’s life. Today Facebook is probably a lot more important to Wall Street than to one of the 900 million users of the site. Nothing gets Wall Street excited, quite like an Initial Public Offering! IPO’s generate millions of dollars in fees and commissions for the participating underwriting investment banks and the exchanges the stock will trade on. It’s estimated Facebook will raise approximately $18 billion dollars.

How does an IPO work?  Here’s an oversimplified explanation:

A private company with the help of an investment bank(s) files for permission with the Securities and Exchange Commission to register and sell a percentage of  privately owned stock to the public. The SEC reviews the submission package, and gives it a yay or nay as regards approval. The SEC is a regulatory body that’s chartered to protect the investing public. The company then makes presentations (also known as a roadshow -here's a link to facebook's video version to qualified investors in order to procure “indications of interest”.  Once the indications of interest are reviewed, the company decides if, when and at what price to offer their stock to the public. The private stock that‘s registered to sell to the public is many times owned by “Insiders” - those who own shares of the privately owned stock at a base price far less than the proposed offering price. One more bit of information. When a company is brought public, some investors will have access to the IPO priced stock, most the after-market.

Once again, the above is for sure, an oversimplification of the IPO process. The Facebook IPO phenomenon is fueled by the sheer size and speed at which this company founded by 20-year old Mark Zuckerberg has gone from an initial investment of $1000 dollars in 2004 to $18 billion dollars in 2012. Facebook the company, will be valued publicly at over $100 billion dollars once it starts trading as FB on The NASDAQ, Friday, May 18, 2012.

$100,000,000,000 or You and Me ?

What if one isn’t an employee of a participating Wall Street investment bank or exchange or an “insider”?  Is there any reason to be excited about The Facebook IPO? Yes, possibly. If an investor  is privileged to purchase actual IPO stock, many times a nice payday ensues. Sometimes investors purchasing after-market shares can also flourish.  I dare say, most of the 900 million worldwide users aren’t participating in any of the above scenarios.

The scenario most of the 900 million Facebook users participates in is usage of  Every company or advertiser that wants to grow it’s footprint (with the exception, I guess of General Motors) wants access to the collective 1.8 billion eyeballs Facebook claims access to.  These business people want to communicate with Facebook Nation, on the personal level Facebook affords. Facebook  states it’s objective is to help provide more open communication for humans in today’s world. Facebook’s ambition, so they say, is to create the ultimate online experience, a win-win for it’s users.

The Facebook IPO - All About $100,000,000,000 or You and Me?

Starting tomorrow morning, we’ll find out….

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