If LinkedIn’s initial public offering (IPO) reaching unexpected heights is a predictor, Facebook, which according to comScore Inc. is the largest U.S. social networking site, would probably make a bigger splash when it goes public, as rumored, sometime in 2012.
An IPO is the first sale of stock by a company to the public on a major stock exchange. Going public is generally done for different reasons, including desiring to grow, paying off debt, and selling a portion of ownership.
LinkedIn, after announcing an initial share price of $32 to $35, was blindsided with Wall Street going viral, starting bids at $83 and closing at $94.25, with the share price jumping to over $100 during the day.
Experts suggest that just as it happened with LinkedIn’s IPO, Facebook’s first public offering will be a “hot” IPO.
“When an IPO is ‘hot,’ appealing to many investors, the demand for the securities far exceeds the supply of shares. The excess demand can only be satisfied once trading in the IPO shares begins. It is unclear how ‘hot’ the offering will be until close to the time when the shares start trading,” according to an entry on the U.S. Securities and Exchange Commission (SEC) website.
Reality set in and LinkedIn’s stock is on a downslide, with a $67.81 closing share price on June 21, sliding down by 28.05 percent since the first closing in May, according to Yahoo Finance Historical Prices.
“Studies have shown that many IPOs tend to trade below their offering price one year after going public. Investors might be better to focus on buying stocks that were IPOs a year earlier,” according to the moneypowercenter (MPC) website.
MPC used Coca-Cola Co. as a quite effective example to make its point, “Coca Cola went public in 1919 at $40 and was trading at $19 a year later. That is quite a difference.”
Rumors Abound About Facebook Going Public
The rumors about Facebook setting the stage for an IPO started when it verified that it had raised $1.5 billion, which is a predictor for a $50 billion valuation of the company.
A fund managed by the Goldman Sachs Group Inc., Goldman itself, and Digital Sky Technologies invested $500 million in Facebook in December 2010. Goldman was willing to go to $1 billion, but Facebook was not interested.
Experts believe that this is another indication of Facebook going public, suggested to occur by April 30, 2012, as most likely it will have over 500 shareholders by then. Even if Facebook opts against going public, it will have to report to the SEC.
A company has to publicly release financial information when it has more than 500 shareholders or more than $10 million in assets, irrespective of whether it goes public or not.
“Even before the investment from Goldman Sachs, Facebook had expected to pass 500 shareholders at some point in 2011, and therefore expects to start filing public financial reports no later than April 30, 2012,” according to a January Facebook press release.
Numbers Speak for Themselves
“Facebook’s share of US online display ad revenues will grow to 17.7 percent in 2011, up from a 12.2 percent share last year,” according to a posting on the eMarketer Digital Intelligence website.
Facebook’s share of advertising net revenue grew from 7 percent of total net revenues in 2009 to 12.2 percent in 2010 and is predicted to reach 19.4 percent by year-end 2012. Net revenue is the final revenue after all costs are deducted.
The top five website net revenue earners are Facebook, Yahoo, Google, Microsoft, and AOL, taking in 52.9 percent of the total U.S. advertisement net earnings. Yahoo, in second place after Facebook, with 14.4 percent of its net earnings in 2010 coming from advertisements, is on a downslide from its 15.8 percent net earnings in 2009. The forecast for Yahoo shows a decrease to 12.3 percent of its net earnings from online advertisements by 2012 year-end.
The only other one that expects net earnings from advertisements to increase is Google, as its net earnings jumped from 4.5 percent in 2009 to 8.6 percent in 2010, and predictions are that the net earnings will increase to 12.3 percent by year-end 2012.
Facebook has over 500 million online users and 1 out of every 13 people worldwide uses Facebook, according to the Digital Buzz Blog website. It’s amazing to read that all Facebook users occupy 700 billion minutes a month on that social networking website.
Daily, 20 million people opt into Facebook worldwide, using 2 million websites. Almost 30 percent of the users access Facebook through mobile phones.
The Israelis are spending 10.7 hours a month on Facebook and are number one worldwide, followed by Russia with 10.3 hours, Argentina (8.4 hours), Philippines (7.9 hours), and Turkey (7.8 hours). The United States is in 10th place with its people spending 5.2 hours monthly on Facebook, according to the comScore Inc. website.
Coca-Cola Israel used Facebook for an innovative approach to plastic bottle recycling, according to Digital Buzz, increasing Facebook use by more than 10,000 new users. The reward was being crowned “Recycling King.”
Another fad, or what Facebook enemies call a stunt, is an application that allows Facebook fans to hide their addiction to Facebook when in the office. Diesel S.p.A., an Italian design company, offers Excellbook, a downloadable application from “Be Stupid at Work,” which “transforms Facebook into a clever and undetectable spreadsheet,” according to a Huffingtonpost article.
Next...A Word From Academia
A Word From Academia
“Although Facebook’s venture capitalists are likely to want a ‘liquidity event’ to cash out, the company historically hasn’t been in any rush to go public,” according to an article on the Knowledge@Wharton (KW) website, a publishing arm of the Wharton School at the University of Pennsylvania.
Facebook sells its stock through private placements, where only a small number of selected investors invest in the company. Generally, such investors are large banks, mutual funds, insurance companies, and pension funds, according to the Investopedia website. Placements need not be registered with the SEC.
The KW article suggests that Facebook has become more like publicly traded companies, given its media coverage, ability to draw on investment capital, and highly satisfactory revenues.
Going public could result in a burden that Facebook is hesitant to accept. Under the Sarbanes-Oxley Act, such requirements regarding transparency, corporate responsibility, financial disclosure, conflicts of interest, accountability, and much more, are most likely reasons for its hesitancy to go public, according to experts.
Long-term growth policies may have to be curtailed or completely revisited. Also, the company culture would most likely be affected in order to meet the expectations of a new stockholder class. Such a culture change could result in its employees, who became millionaires by investing in Facebook, moving on to greener waters, representing a great loss to the company.
Lastly, according to KW, “Facebook will have to stay nimble and focused enough to maintain the edge that made it such a success in the first place,” This could be a strain too heavy to carry for the company.
Snapshot of Modern Times—Social Networking
The term social networking is relatively new, as it was dreamt up only about five to six years ago. But it fits perfectly with modern people’s way of thinking and technical acumen.
“When I started blogging in 2004, the term social media didn’t exist. I used the term Web 2.0 which had been coined by Tim O’Reilly back in 2004. I started using the term ‘social networking’ in early 2007, and I didn’t use the term ‘Social media’ until later in 2008,” said the owner of Eileen’s Social Technology blog on her blog.
The concept of social networking, which in plain language is interacting with others, has been around in different forms for centuries. The ancients had a knack of intermingling with others, just as the people in modern times.
Social networking starts with people talking on a one-to-one basis, going on to group discussions, conference calls, sending e-mails, and finally to transmitting a message to thousands of people on one of the many networking sites.
There are many timelines about social networking on the Internet, with some going back to the ancients. My intention is to provide just a quick glimpse into the most recent ways social networking has developed.
The first large scale networking site, Six Degrees, was launched in 1997, followed by Friendster in 2002, MySpace in 2003, Facebook in 2004, YouTube in 2005, Twitter in 2006, Groupon in 2008, Google Buzz in 2010, and Social Gift in 2011.
The latest site, College Twist.com, a collegiate social networking site, is to be launched on Aug. 1 by two Florida Atlantic University students. This site will feature sharing college life with fellow, prospective, and former students with all its miseries, downfalls, and pleasures.
“College Twist is a simple way for current, past, and prospective students to get familiar with their campus, without leaving the comfort of their home. What makes College Twist different than others? YOU!” announced the developers on their website a few months ago.
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