Facebook is poised to offer one of the largest Internet IPOs in history, with a $100 billion dollar peak valuation. Investors eagerly await to buy a slice of the social networking empire.
You know what’s cool? $100 billion. That’s right, 100 times more than Sean Parker presumptuously proposed to Mark Zuckerberg in The Social Network. Boy, was he wrong.
After years of speculation, controversy, and lawsuits over privacy, our beloved social networking service is finally ready to go big. Really big. Bigger than Google big. In a deal that will make 1,000+ employees and private investors overnight millionaires, Facebook, Inc. is now one step closer to going public after submitting their long-anticipated IPO prospectus to the Securities and Exchange Commission on February 1.
Facebook IPO: At A Glance
- IPO Goal: $5 Billion
- Projected Market Cap:: $75-100 Billion
- Underwriters: Morgan Stanley, JPMorgan Chase & Co., Goldman Sachs Group Inc., Bank of America Corp., Barclays Plc, Allen & Co., Deutsche Bank AG, Credit Suisse Group AG, Citigroup Inc.
- Users: 845 Million (Active, December 2011)
- Revenue: $3.71 Billion (2011), +$1.97B (2010)
- Employees: 3000+ (2011)
- Alexa Rank: 2 (March 2012)
Spoils To The In-Crowd
It’s important to understand that investing into an eventual Facebook IPO is seemingly equivalent to finding a golden ticket in a bar of chocolate. In an interview from All Things Considered on NPR, host Melissa Block and Dennis Berman of The Wall Street Journal discussed the possibility of acquiring Facebook stock on day one:
Block: OK. So the day of the IPO arrives. Who is it who gets to buy shares in Facebook on that opening trade?
Berman: Well, not you, not me and probably not most listeners. In a very hot IPO, what happens is the underwriters – and these are largely big banks. You know their names. Goldman Sachs, Merrill Lynch. They allocate shares that they’ve purchased from the company to their customers. Now, it’s not any old Joe who has a small brokerage account at Merrill Lynch. Most of the time, these shares go to the best clients and those best clients often are big institutions, hedge funds, other big money managers and the most high net worth individuals.
Block: And if I, as a – you know, I’m a Facebook user. If I go to Morgan Stanley and I say, look, I want one share of Facebook. Deal me in. Why can’t they do that?
Berman: Well, because life isn’t fair and they allocate the best opportunities for the best customers. Now, they would say to you, hey, Melissa, if you want to buy the Facebook share, great. Open an account, and once it starts trading, you can go into the market and buy that piece of stock.
In a hypothetical world, having possession of a few shares still won’t make the majority of us any richer, or produce any early-retirement dividends. It would however, be an exciting tech stock to have in a portfolio and watch as the company either skyrockets or goes down in flames towards dot-com purgatory. Many skeptics have criticized this deal, disclaiming that an initial public offering should have taken place during Facebook’s major period of growth, and not at its current position. Although, proponents can still argue — as long as membership retention is high, advertisers will swoon.
To no surprise, the biggest beneficiaries will be those within the Facebook camp and inside investors:
The Challenge of Staying Relevant
History has taught us that social networking services typically have a lifecycle. Currently, Facebook is rapidly approaching the peak of its maturity; where the volume of unique visitors and user registration begin to dwindle after capturing its core market. On the other hand, the key area to be more concerned with is user activity. This is where product development and enhancement come into play. Advantage: Facebook Developers.
Since inception, Facebook has always embraced UX simplicity. No crazy customizations, profile themes, embedded music players, or the worst-of-the-worst: HTML/CSS code override. (Yes My[______] I’m talking about you). Even the recent release of Timeline continues the trend of putting user tailoring on a short leash. There was (and still is) no better development decision than to retain control over how the site is rendered; allowing more features, more upgrades, and an overall better interface experience. Let’s not forget laying a foundation for mobile as well.
And the web integration, oh the integration. When was the last time you visited a news outlet, social network, blog, forum community, anything, without seeing at least one of these:
Facebook has meticulously dug its claws into every corner of the Internet, creating an institution of “Like” and “Connect”. Even start-up hits from the last five years such as Spotify, Foursquare, and yes, Twitter – have all integrated their services and allowed publication of user content into Facebook’s feed. Unofficially, Zuckerberg’s creation has become the default central hub for personal information and sharing: the mother of all aggregates. Trust me, it’s an eye-opening reality when you learn of major national events through a Status Update before seeing it on TV or reading it in a newspaper. Clearly Facebook’s technology compels us, as approximately 1/6 of the world’s population is currently registered. Staggering.
Then there’s the never-ending debate amongst supporters and naysayers alike, “When will Facebook finally meet its demise?”. Well, the answer is: maybe never. If they play their cards right over the next few years.
In spite of Google+ continuing to gain ground, it’s interesting to see that Facebook users are not necessarily abandoning their accounts (ala MySpace-Facebook transition). Rather, they are anteing-up with multiple profiles across multiple platforms — unwilling to favor one over the other. This is where advertisers, investors, and users see lasting power.
Full-Steam Ahead Towards IPO
Time for the proverbial question: Granted that shares are available, should I buy Facebook stock? The answer is a huge toss up. I’m no market expert, but when you look at the company as a whole and the amount of growth it has already experienced since 2004, questions of long-term investment begin to loom. Surely, all of the hype will soon fade, and we’ll be left with a real stock price that is representative of what the shareholders believe the company is worth. Let’s also consider (and hope) that the number of insta-millionaires to be made aren’t planning on leaving Facebook high and dry. Without core product development, you lose a huge aspect of the business, and that could be bad news for investors.
A fair consensus could be this: invest for the thrill, but don’t expect it to pay your kids’ college tuition. Remember that gains may only be marginal in the beginning as everyone rushes the market to get a slice. All in all, Facebook’s fiscal performance will always be dependent on its relevancy and ability to engage users old and new. Without 7% of the world keenly tied to their News Feed, well, this would just be another dot-com on the verge of offering mediocre stock.
Needless to say, once the FB ticker symbol makes it debut on Wall Street, a feeding frenzy is bound to ensue. Until then, the anticipation can only build from here — as I hit replay on my Blu-ray player. ♠
Image Credit: Facebook Inc., facebook.com, learnvest.com