Facebook IPO will put public markets to shame

January 30, 2012

By Rob Cox
The author is a Reuters Breakingviews columnist. The opinions expressed are his own

Facebook’s imminent stock sale risks putting public stock markets to shame. Investors will surely clamor for a piece of the social network. But unlike Google’s 2004 initial public offering, everyone who’s anyone has already made a killing off Mark Zuckerberg’s dorm-room project. At a $100 billion valuation, it’s hard to imagine much could remain.

The list of who gained access to Facebook’s value-creation steamroller is extensive. It’s not just Silicon Valley elite, including Sean Parker, Peter Thiel and Zynga’s Mark Pincus. The roster extends to global billionaires and, naturally, Goldman Sachs. Even Microsoft is up big.

In one respect, that’s good. It suggests innovative entrepreneurs can access ample capital from a diversity of sources. And that may mean fewer of the likes of Pets.com tap public investors. But when the question of equality of opportunity in capitalism is being questioned like never before, Facebook shows one clear way the rich get richer.

Set aside the earliest funders. Thiel, who invested the year Google went public, gambled on a Harvard dropout with an idea. Accel Partners could easily have seen its $12.7 million investment in 2005 vanish, rather than rise to $9 billion on paper.

Later investors also took risks, though their procession looks more like the Davos caste system. At the $15 billion mark, there was Microsoft and Hong Kong billionaire Li Ka-shing. Soon after, Russian Internet smarty-pants Yuri Milner cleverly offered to buy stock from Facebook employees. Bono’s Elevation Partners swooped in with a deal that might just allow it to raise another fund.

Later came Goldman, buying nearly $2 billion of Facebook stock for private banking clients and itself at a $50 billion valuation. Facebook staff shares were available on SecondMarket, but only to accredited investors with experience investing in private firms.

The worry is that after the investing aristocracy has feasted on Facebook, there’s little left for the hoi polloi. Google’s lifespan as a private firm was shorter before debuting at $85 a share. They’re now $580 – a valuation approaching $200 billion. For Facebook to match that performance it would need to become the world’s first $700 billion company.

Comments

I might be wrong but isn’t Facebook’s only income stream come from advertising on its site?

I think they got like $2.3 billion in 2011.

Once these investors get their hands on the stock what’s to keep them from cashing out on the rise and let the sheeple buy up the public shares?

Oh that’s how it’s supposed to work.

Facebook is already at or near its peak in popularity for gossipers and teenage bullies but it still might do well in the near term.

Posted by Harry079 | Report as abusive
 

And there’s always the specter of a Facebook killer on the horizon. Murdoch and company paid a huge amount for MySpace only to see the vast majority of that investment disappear in a matter of years. Something will eventually come along that makes Facebook look as dated as we think Myspace looks now.

Posted by Nullcorp | Report as abusive
 

We live in a world where a company like Facebook with an estimated revenue of around USD 2 billion ( FY ending 2011 ) is valued at over US 100 billion and Twitter carries a valuation tag of around US 10 billon with an estimated revenue projection of approximately US 110 million ( FY 2011 ). Do check out an interesting post titled ” Innovation,Ideas And The Search For Growth In A Market Disconnected With The Real Economy on SonyKumar’s blog or go to http://www.sonykumar.com

Posted by SKDelamore | Report as abusive
 

The problem I see with Facebook going public is that it will now have stock holders to answer too. So that means Facebook has to keep improving its bottom line. One has to wonder how our information will be put up to the highest bidder?

Posted by jscott418 | Report as abusive
 

Typical “Funnel Up Economics”. The Top 10% only will reap the majority of the benefits while the remaining 90% scramble to make a buck from the scraps if there are any left over. The Rich get Richer.

Posted by steviel2011 | Report as abusive
 

This wasn’t Zuckerberg’s “dorm room project”. It was the Winkelvoss Twins’ project.

Be accurate. I’d like to wipe that grin from Zuckerberg’s face.

Posted by American3P | Report as abusive
 

We want to say “thank you Jesus” that a mainstream news group like Reuters has the courage to put this column up, but we’re sure it’d be fruitless.

We don’t think the morons who put all their lives on Facebook for their 500 closest friends to “like” read Reuters. So, in the long run, we’re all doomed.

And in the short run, they’ll snap up Facebook in lots of 100 here, 1000 there, until somebody’s left holding the bag. Graph it. It’ll look like a pyramid. And we can thank the Wall Street psychopaths for that: http://www.WeWereWallStreet.com/Wall-Str eet-Psychos.html.

Where do we buy those put thingies?

Posted by WeWereWallSt | Report as abusive
 

Value??? it is a virtual business. Going public seems like a scam to me. Today you sell your VIRTUAL business (OK, so they sell advertising and who knows what else to whom… wonder) but other sites would take over sooner or later and this kid is out with big REAL bucks while the shareholders would sit on virtual paper (not even a real one to frame like the old days) 85 euro share? well, if you are the kind of person who has 85 bucks to trow away buy one…. again, bankers and those selling the stock would make a bundle out of nothing…

Posted by koli | Report as abusive
 

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