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Economics

Mark´s payday: Facebook hitting stock markets

Mark´s payday: Facebook hitting stock markets

Facebook is selling out! Between April and July in 2012 Facebook will –finally – head towards the stock markets. This means, Facebook will no longer be owned by Mark Zuckerberg and the facebook crew. Instead, it will be owned by the stock holders. Pathik Shah explains that for this reason Mark had been postponing the IPO: He loses control on Facebook and will probably have to please shareholders in terms of profits instead of making long term decisions that please the customer (members). More ads and advertising to create profit could lead to a loss in members.

But is this the right time to open up? The world is watching the EURO crisis drowning down European member states and the USA are highly indebted and about to collapse, too. A quotation of Robert Galbraith shows that the time could maybe not have been chosen better:

“While weak financial markets could postpone or downsize any IPO (Initial Public Stock Offering), even the most conservative market-watchers say Facebook seems destined to set a new benchmark in a region famous for minting fortunes, with even the rank-and-file employees reaping millions of dollars.”

Facebook revenues

Facebook will generate revenue of $4.27 billion this year, according to Bloomberg, citing data from research firm eMarketer. Approximately $3.8 billion, or 89% of total revenue, will come from advertising. The other 11% comes from other sources, most notably gaming developed by its partner, Zynga, the creator of Farmville.

Facebook is diving in cash. Basically it wouldn´t need to go public yet. But it will be required to do so by April, because it will cross the 500-shareholder limit by the end of this year. So why not go public if the financial results are public anyways?

Also Facebook employees create pressure: When Facebook goes public in 2012 it could create well over thousands of millionaires. Although many startups offer shares, Facebook of course is a special case. With over 3000 employees now, it is conceivable that by the time those cash out their stock over one third of them would turn millionaires!!! Markimark himself owns 24.7 percent of Facebook. The social network is expected to be valued at as much as 100 billion dollar which would even top Google Inc.

But…

How can it be determined that these stocks will create that many millionaires when it depends solely on the stock holders that SELL their stock? Commenter Miker-3057253 is giving a metaphor expamle that helps a lot to understand: „I have an old box van in my back yard. If someone is willing to pay me $1,000,000 for it, I’m not a millionaire unless I actually do the deed and get the cash in hand. Merely having some guy in Toronto tell a reporter at the WSJ (for example) that he would pay $1,000,000 for my truck does not make me a millionaire. By the same token, if I give the guy an option to buy my truck for $100 and he never exercises it, he’s not a millionaire, either – even if old box vans start selling for $2,000,000 each. (I wish.)“

Plus: There is always the risk that talented staff would leave with their newfound wealth to make their own mark in the technology world by becoming entrepreneurs or investing in other promising startups -> competitors.

A comparison from the past

After Google went public in 2004, it was believed that more than 900 employees became instant millionaires, including a chef and masseuse. But just four years after the IPO, nearly one-third of Google’s first 500 employees had left the company for new (ad)ventures. And over the last few years, more pre-IPO employees have left the company with boatloads of cash in their bank accounts.

Carrie Ann claims that the IPO is a good thing for two reasons: Firstly it is a self-sustaining model because users communicate. The goods are the customers, so shareholders focus will lie on the customers. Secondly there a lot room for FB to grow, e.g. a Facebook smartphone or mobile offerings.

My gut inclination was gettin the hell out of FB because I was afraid of my data falling into the wrong hands. BUT what I have to add is: FaceBook has its issues, but it does an excellent job of helping people stay connected and making it easier to share their lives. Second Source

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Discussion

One thought on “Mark´s payday: Facebook hitting stock markets

  1. Nicely done, Pia! I like especially that last discussion of Carrie Ann, which moves far beyond the logic of superlatives, greed, envy, etc., to discuss instead how going public will likely change the way the company does business, and especially, as you not, how differently it may communicate with its users and shareholders.

    Another interesting topic is the last discussion of leaving/staying with Facebook: what evidence do you have that Facebook actually “helps” people stay connected? I keep coming across articles which talk about attention deficit disorders, narcissism, alienation … all sorts of wierd behaviors associated with Facebook. Maybe you are right, but personally, I’d like to see some informed discussion, data, reflection, etc. — wouldn’t you?

    Posted by Bruce Spear | December 28, 2011, 5:48 pm

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