January 31, 2012 9:12 p.m.
As Facebook Inc. files for what is likely to be a historic initial public offering of stock, a big question looms for its millions of loyal users.
Will they be able to get in on what could be the hottest deal in years — or will they be left with their noses pressed against the glass, as individual investors typically are in coveted IPOs?
Ordinary investors normally are relegated to the sidelines in red-hot IPOs, with Wall Street brokerage firms that handle the deals parceling out shares to hedge funds, mutual funds and some ultra-wealthy individuals that generate big trading commissions.
Retail investors are left with little choice but to try to buy shares on the first day of trading. Getting a decent price before the stock rises tends to be next to impossible, and most investors miss out on the big first-day surge.
There is speculation, however, that Facebook may take steps to make some portion of its IPO shares available to small investors, partially as a public relations gesture that could generate goodwill.
“I guess there will be somewhat of an altruistic tone to the structure of the deal,” said David Menlow, president of IPOfinancial.com, a research firm in Millburn, N.J. “It’s important for people who are Facebook users to at least have a priority in getting shares.”
Who gets shares is one of many questions that eager investors, devoted Facebook aficionados and the just plain curious hope to have answered when the company files with the Securities and Exchange Commission for an IPO that could take place in the spring.
Facebook is expected to file the paperwork as early as Wednesday, setting in motion a tumultuous three-month-or-so period in which the inner workings of the company are scrutinized and debated as never before.
Facebook could sell up to $10 billion in shares in a deal that values the company at as much as $100 billion. Wall Street brokerage Morgan Stanley is expected to lead the offering.
The IPO would be the largest ever by an Internet company, dwarfing the $1.9 billion that Google Inc.raised in its 2004 debut. It would also be the fourth-largest U.S. IPO of all time, according to research firm Renaissance Capital.
Aside from the sheer numbers, Facebook’s IPO would mark a watershed that underscores the breakneck speed at which social networking has evolved from a pastime of Internet enthusiasts sharing tidbits of their lives to a potent force in everything from the business world to broad social discourse.
Later this year Facebook is expected to exceed 1 billion users — half of all people on the Internet and 1 of every 7 people on the planet — a remarkable threshold for the brainchild of 27-year-old Mark Zuckerberg, who was only 19 when he launched the social network in his Harvard dorm room in 2004.
“This is once in a decade,” said Sandeep Dahiya, associate professor of finance at Georgetown University‘s McDonough School of Business. “Facebook is probably going to be the deal for many years.”
The regulatory filing, known as an S1 by the SEC, will pull back the covers on a variety of financial data. Facebook will divulge information on revenue, earnings and the company’s all-important growth rate that analysts up to now have only been able to guess at.
Facebook is also expected to explain how it plans to walk the precarious line between culling user data to sell to advertisers and addressing privacy concerns of its growing subscriber base.
“Right now it’s a black box,” Dahiya said. “We’ll finally know for sure all those numbers that have been talked about.”
Still, the biggest question for investors of all sizes is how to get in on the action — and whether Facebook loyalists have any chance of snagging its sought-after shares. Some analysts expect that Facebook might try to make that happen.
Aside from the public relations boost, it would help create a diversified shareholder base, experts say. Small investors are considered much less likely to “flip” shares on the first day of trading, as many institutions do.
Facebook could instruct Morgan Stanley and the other investment banks handling the deal to set aside a portion of shares for small investors with accounts less than a certain size, experts said.
Of course, only a fraction of investors would get shares. And they probably wouldn’t get many. Even large investors will receive only a handful of what they want, analysts say.
“It’s not like we’re all going to open up our Facebook account and it’ll be a little treasure box with a share of Facebook,” said Kathleen Smith, a principal at Renaissance Capital.
“If you’re not paying, you’re not the customer, you’re the product.” This warning to Facebook’s 800 million users about the nature of the social network’s business model has become something of a cliche. But, as the world awaits the most hotly anticipated IPO since Google, it’s clear that what will be on sale is you, the user, and your 800 million friends. (With half of the UK population on Facebook, I’m assuming that you’re likely to be a member.)
How much we are deemed to be worth is what will determine the value of the business when the shares are priced. Facebook, like Google, is an advertising business and one that has introduced a radical new way of reaching consumers. With Google it was via our searches, with Facebook it’s our likes, dislikes and all the other data that we contribute freely to the site.
Ask anyone about adverts on Facebook and they are likely to tell you that they never notice them, and are sure they have no impact on their purchasing decisions. They are quite likely to say the same about the ads served up by Google, yet the search firm’s clients are happily handing over billions of dollars, confident that this is the way to reach their customers
On a visit to a London digital marketing agency yesterday, I got a glimpse of how powerful a platform Facebook can be for advertisers. I-Spy demonstrated how they could funnel into Facebook’s data to target a precise group of people – say, 25-40-year-olds in the Reading area, looking for jobs in the technology sector.
The agency, which used to send nearly all of its clients’ marketing budgets in Google’s direction, is now putting about 10% on Facebook, and expects that to grow. Jim Brigden, I-Spy’s CEO, was enthusiastic about what the social network could offer in terms of targeting, but cautious about whether it would ever be as useful as Google.
He explained that Google delivered customers who were already looking for something, while Facebook might be better for engaging with consumers and letting them know about a brand. “It won’t work for everything,” he said. “You wouldn’t try to sell funerals or financial services.” But his clients, from a recruitment agency to the makers of Spam (the real thing, not that stuff in your inbox, were very happy with the results so far).
What we will find out when the IPO papers are filed is just how much revenue this kind of advertising is earning for Facebook, and how rapidly that is growing. Then Wall Street will have to decide how to price the shares. Last week they were trading privately at a valuation of $80bn, and there is talk of the price tag climbing to $100bn or above.
That figure looks ridiculous for a business with much to prove, but optimists will say that there was similar scepticism about Google’s IPO in 2004. The search firm went on to show that it was worth a whole lot more than the value at which it floated.
Whatever the price, the Facebook IPO will generate eye-watering sums for investment banks, lawyers, and of course Mark Zuckerberg and other owners of a slice of the business. Then the really difficult bit starts – showing that the Facebook audience really is a valuable resource, willing to be targeted with more and more advertising. In other words, it is up to you and your Facebook friends.
Wednesday February 1st, 2012
February 1st, 2012
2 + 1 +2+0+1+2 = 8 = Facebook IPO offering’s life lesson and personal year = Practical. Pragmatic. Strength. Power. Control. Business. Status. Recognition. Prestige. Prominence. Executive. Management. Administrative. Business sense. Foundation. Structure. Solid. Sturdy. Tangible.
comprehensive summary and list of predictions for 2012:
learn numerology from numerologist to the world, Ed Peterson:
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