May 11, 2012

The Facebook IPO


“Back up, guys. Back up.”

Shelby: That is Mark Zuckerberg, Facebook’s 27-year-old CEO. And this is him getting mobbed like a rock star in New York City this week. But he wasn’t giving a concert. He was visiting with potential investors during the company’s road show.

“Facebook’s mission is to make the world more open and connected.”

Shelby: With more than 900 million monthly users, Facebook has already accomplished that mission. Now, Facebook’s big challenge is making money. And that is why the company’s executives are on the road pitching Facebook’s initial public offering, or IPO, expected May 18th. That is when Facebook will sell pieces of the company to outside investors for the very first time.

But in reality, the initial public offering won’t really be open to the public. Most of the shares will likely be sold to big companies, and only a small fraction are expected to be available to ordinary investors and even Facebook users like you and me.

“I have more chance to get on ticketmaster to buy a concert ticket to a really hard-to-get-concert than I can Facebook stock.”

Shelby: Facebook, which makes 85% of its money from all of those ads you see popping up on the site, made a billion dollars in profit last year. That might sound like a lot of money but the company is being valued at ten times that amount.

Facebook set the price range for each share of the company between $28 to $35. Total shares together? $96 billion. The largest ever IPO.

“I would not invest in it right now.”

Shelby: But not everybody is so eager to become an investor.

“You always have to wonder about the price when you’re making an investment. And the price is just way too high.”

Shelby: That is why some say that Facebook is too risky of an investment right now. Like one of the richest men on the planet, Warren Buffet, the legendary investor said, “I’m an agnostic on a company like Facebook. They’re the hardest ones to value.”

The road show’s hype has put a lot of pressure on Mark Zuckerberg, but either way, he is about to become even more powerful, and make even more money. It is estimated he could make nearly $18 billion when Facebook does go public. And he is hanging on to 57% of the company he started in his Harvard dorm room. So, the big question for potential investors may be whether or not to trust the guy in the hoodie.

“You’re buying him. You’re buying his zany, wacky creativity. And if that comes in a hoodie, instead of a pin-striped suit, well then, that’s fine with me.”

Shelby: Shelby Holliday, Channel One News.


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