The Facebook IPO filing is looking more like a sharpened pin prised to burst the bubble.
On February 1, Facebook decided to release the information around its public offering, preparing to sell shares to the public for the first time in order to raise $5 billion. Facebook has an estimated value of $100 billion but as much as those numbers make me want to pay attention, I am more concerned with everyone missing the real story behind the hype. It seems like we are heading for another crash whilst we are all looking the other way.
I am one of the 845 million active users around the world who checks my profile daily from my smart phone, work computer and home PC. I have been an active user since 2007 before my class mates, family, old school friends and the rest of the world decided to join. On the one hand, Facebook is a brilliant website that connects people from all over the world and allows me to know what everyone is doing. On the other hand, it is a corporation that makes money by selling personal data to advertisers. Facebook earned $1 billion on sales of $3.7 billion in 2011 and founder Mark Zuckerberg collects $500,000 in salary, the COO gets $300,000 and the CFO gets $300,000 as well.
If you want to invest your money in Facebook, the initial price offering is $28 to $35 per share, much lower than previously expected. If Facebook manages to sell all of the shares it is offering, the social network could raise over $10 billion. Those numbers would make Facebook the most valuable internet company in the United States. Furthermore, the company would be valued more than many countries around the world.
The IPO is due to take place on May 18. In the run-up to the opening, Facebook has been touring the key financial centers around the U.S., holding crucial question and answer presentations with analysts and potential investors. Facebook will list on the Nasdaq, which hosts many Silicon Valley tech companies. The money raised from the IPO will be split in half, so that one half goes to Facebook and the other half are divided between some inside investors including Mark Zuckerberg, Peter Thiel, Yuri Milner, venture firm Accel Partners, and Goldman Sachs. If you review the actual numbers, Facebook has more liabilities than revenue and a whopping $5,272,000,000 in stockholders equity which will be expecting to seek a return on the initial investment.
The biggest cause for concern is the financial giants who are advising Facebook and managing the IPO. They include 38 corporations with many of the usual suspects like Ernst and Young, Goldman Sachs, J.P.Morgan, Morgan Stanley, Barclays, Merrill Lynch, Citigroup, Credit Suisse, Deutsche Bank, and many others who all have a vested interest in ensuring that Facebook’s IPO generates the most income possible. So is this a crisis waiting to happen? As the media reports the IPO in terms of mind-bugling numbers, we should be paying more attention to who will win when the stocks are open to the public. My guesses are that every individual investor who tries to get in on the action will be buying an inflated stock that will not be worth the money it is printed on when the real winners bailout after they make their returns.
Remember the last dot com crash? It seems like that old adage is returning where its not history that repeats itself but people continue to forget history and make the same mistakes from yesterday. Realistically what does Facebook have to offer? Would you invest in a company that buys a dodgy photo sharing app for $1 billion? So as this new tech bubble continues to expand, why is there not more discussion about the impending explosion? Maybe it’s because greedy investors are convinced that Facebook can offer them enormous profits without actually investing that money in the real economy to create jobs in the fragile economies both at home and abroad.