Having already attracted Hollywood’s
attention with the 2010 movie “Social Network”, loosely based on the Facebook
story, the saga continues developing with the company’s upcoming IPO. What does
the future hold for Facebook as it makes the significant transition from
private to publicly held company?
Facebook’s meteoric rise from its
birth in a Harvard dorm in 2004 has already affected its 845 million customers,
and with its IPO, the company’s performance will begin to affect a whole
community of investors. According to its S1 IPO filing with the SEC, the
company made a profit of $1 billion last year and will probably earn more after
its IPO.
Significant
Changes for Facebook After the IPO
Some analysts foresee Facebook being
less innovative as the company opens itself up to the scrutiny of its new
shareholders. Also, due to the expected exodus of its brightest talent as
employees and managers cash out and leave the firm, the company will be
challenged to remain ahead of its competitors in retaining its talent.
Furthermore, Facebook employees —
many of which came from other large firms such as Google — who cash out and
leave the firm, may move on and use their newly acquired wealth to start up
their own companies, creating additional competition for Facebook.
Once Facebook goes public, the company will be pressured to show increasing revenue. Presently, Facebook’s revenue comes primarily from advertising, with $3.8 billion made in 2011, and apps selling products on the Facebook platform for which the company takes a 30 percent cut.
Facebook’s network is a marketer’s
dream come true, which will most likely have the company create new types of
advertising vehicles and targeting applications for advertisers to take
advantage of on their platform. With Facebook’s enormous client base, getting
the word out for a product will be that much easier for advertisers.
Possible
Takeovers of Other Companies
With the expected windfall of cash
from the IPO, in addition to liquidity in its newly issued stock, Facebook will
be in a prime position to take over other companies in related businesses, as
well as its competitors.
Facebook has recently been shopping
and acquiring talent from other firms, such as Gowalla, who recently shut down
its location based service. Also recently acquired was the team behind
Caffeinated Mind, a startup specializing in fast file and data transfers.
More takeovers as a result of the IPO are likely to take place, with Facebook probably already planning ahead. Possible targets include Facebook’s competitors as well as companies offering services which would complement Facebook’s platform.
Facebook’s
Stock Price and the IPO
According to allfacebook.com,
Facebook stock closed at $33 per share at the last auction on SharesPost, where
an 80,000 share block traded recently. This would put the valuation of the
company — with an estimated 2.5 million outstanding shares — at $82.5 billion.
The auction for the Class B Common Stock of Facebook Corporation was significantly oversubscribed according to SharesPost. This would indicate that the IPO price, which has as of this writing not been disclosed, to be somewhere in the vicinity of $40 per share, given a $100 billion valuation for the company.
Given the attention the Facebook IPO
has already attracted, the shares could go much higher immediately after the
issue. Nevertheless, when the stock reaches a certain level, many people may
look to cash out, putting downward pressure on the stock, this is very likely
in the case of Facebook.
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