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One big virtual thumbs up for the Facebook IPO.
How much is a “Like” worth? What’s the value of a “Friendship?” These are the type of questions that Wall Street analysts and investors will be seeking answers for, as they try to put a price on this highly anticipated Facebook IPO. With a valuation of approximately $100 billion, the social media giant Facebook has finally decided to go public by filing for a $5 billion dollar Initial Public Offering. Last year was littered with a smattering of tech IPO’s raising over $6.6 Billion in total, the highest in over a decade. At such an astronomically high valuation, a $5 billion dollar IPO seems dwarfed in comparison. But with a track record of recently public tech stocks under-performing, $5 billion dollars won’t be a walk in the park to raise with the current level of investor uncertainty in internet business models, even for Wall Street big wigs signed on to underwrite the deal. However this IPO is particularly promising as Facebook is a consumer facing internet company, truly groundbreaking in the way that it changes how people interact, and how commerce happens. Kicking off tech IPOs in 2012 with a bang, Facebook stock is expected to trade on the NASDAQ or New York Stock Exchange with the ticker symbol aptly named, wait for it….FB.
The intersection of Social Media and Investment Banking: It's a Win-Win.
The original founders of this hugely successful tech start-up which began in a Harvard dorm room 8 years ago under the strategic leadership of Mark Zuckerberg, have long awaited this chance to cash out and place a dollar value on their shares. I say strategic because this 27-yr old entrepreneur had the tenacity to hold on to the helm of his business amidst offers to sell at substantially lower valuations (although they would still have been SIZABLE amounts to turn down). While the federal regulators have not yet forced Facebook to publicize its financial performance, top-line revenue figures have doubled from $2 billion to $3.71 billion in just the last year. The way Zuckerberg has managed to build an online community of nearly 800 million users, and then lay a revenue generating business on top of this community is truly admirable. With such a high level of user saturation, Facebook will no doubt find ways to deepen user engagement and interaction to turn the company into a cash cow. Let’s take a look at the primary stakeholders and how much they stand to make once the company goes public.
Conversion tip: Multiply the percentage stake by the total expected valuation of $100 billion. A one percent stake translates comfortably into a nice round $1 billion dollars.
Founder Mark Zuckerberg: 24 percent stake.
Jim Breyer with a 1 percent stake, managing partner of Accel Partners with a 15 percent stake overall.
Mr. Moskovitz with a 6 percent stake, Zuckerberg's former Harvard roommate.
Sean Parker with a 4 percent stake. (Anybody else just picture Justin Timberlake in "The Social Network"?)
Tyler and Cameron Winklevoss and their partner Divya Narendra with a 1 percent stake overall, claimed they came up with the original idea for Facebook.
Aside from how rich the shareholders are going to become off Zuckerberg’s genius, the Wall Street Bankers signed on to underwrite the deal can also expect to make a hefty cut and gain huge bragging rights. But what’s really interesting about the banks leading this deal, Morgan Stanley, JPMorgan Chase, and Goldman Sachs, is that employees of these firms are blocked from accessing Facebook at work. Facebook has such far-reaching penetration of the public that even Wall Street banks realize how much productivity is lost when analysts are constantly checking their Facebook pages at work. Maybe this Facebook induced procrastination goes beyond the Western campus after-all. Even though this is standard business practice, I sure hope these banks allow their analysts access to FB during valuation crunch time for “research” purposes. Anyway, the main message I’m trying to get across is that if you start-up a promising company, work hard and commit to it because who knows, maybe one day it’ll go public at a nice $100 billion dollars.
