Details Regarding The Facebook IPO

In a normal economic year, there are dozens of Initial Public Offerings (IPOs). Most IPOs are routine affairs in which companies go public by selling shares of their company to raise capital for current and future business needs. Occasionally, an IPO towers above the rest and dominates the IPO market and headlines. The 2012 IPO calendar will be dominated Facebook’s IPO, which is set to occur during the week of May 18, 2012. The following are the details regarding the Facebook IPO.

Facebook is the well known social networking website founded by Mark Zuckerberg and three classmates at Harvard. With over 900 million active monthly users and over 525 million active daily users worldwide (per the ammended S-1 filings on April 23 and May 3, 2012), the upcoming Facebook IPO has generated an excitement in the Wall Street IPO community and the broader investor community that rivals other well known Internet IPOs, such as Google, Amazon, and eBay.

There has been a lot of speculation regarding when the Facebook IPO will occur. The Facebook IPO is now set to occur on or around May 17, 2012. Facebook will list their shares on the NASDAQ stock exchange, which will put Facebook in good company on the same stock exchange as the largest technology companies in the world. Facebook will trade under the symbol “FB” after the Facebook IPO occurs.

Facebook has set a price range of $34 to $38 for the IPO of its stock (it was originally $28 to $35 per share, but raised on May 15th, due to high investor demand). Facebook will sell 180 million shares as part of the Facebook IPO, with the balance of the IPO shares being sold by insiders and early investors. If the Facebook IPO sells at the high end of this range, the Facebook IPO will raise as much as $14.6 billion, with the company netting up to $6.8 billion and insiders and early investors netting the balance from the IPO. While the Facebook IPO is a very large IPO by any measure, it will not be a record breaking IPO. The current IPO record is held by Industrial and Commercial Bank of China, which raised $22 Billion in an IPO that occurred in 2006.

If the Facebook IPO underwriters sell the additional stock that is reserved for overallotments, Facebook could be valued at just over $100 billion (with a range of $82 billion to $106 billion). However, this valuation will increase dramatically after Facebook FB shares are available for public trading, and people shut out from the Facebook IPO are able to buy Facebook shares, pushing up the price of FB stock and the valuation of Facebook. Many market observers expect Facebook to be worth between $100 billion and $150 billion after Facebook shares finish trading on their IPO day.

Many individual investors will not be able to participate directly in the Facebook IPO due to overwhelming demand for the IPO by well connected people in the Wall Street investment community. Individual investors could still benefit from the Facebook IPO by buying stocks in companies in the social networking space before the Facebook IPO occurs that should benefit from the focus that Facebook IPO will put on all stocks in the social networking space. Some stocks in the social networking space that have the potential for a positive price increase as a result of the Facebook IPO include:

• Google Inc. (NASDAQ: GOOG), the dominant search engine that started a social networking service in 2011 called Google+
• Zynga Inc. (NASDAQ:ZNGA), an online gaming company that provides games through on Facebook and other social networks
• Quepasa Corporation (OTC:QPSA), the owner of a social networking website that is known as the Spanish language Facebook.
• Snap Interactive, Inc. (OTC:STVI), an online dating and social networking applications developer that also owns a popular social networking dating site;
• WebMediaBrands, Inc. (NASDAQ: WEBM), an Internet media company with an umbrella of social networking websites.

See Publicly Traded Social Networking Stocks To Play The Facebook IPO for more details regarding trading the Facebook IPO via publicly traded social networking stocks.

Once the Facebook IPO occurs, Facebook’s publicly traded stock will be priced based on market supply and demand forces. Given the past history of other hot Internet company IPOs, it is likely that the newly public Facebook stock will have a large price increase on the first day of public trading. Whether buying Facebook’s stock once it is publicly traded makes good sense as a long term investment will depend on the valuation of Facebook after it is trading publicly, and what its growth prospects are for the future. The best time to buy hot Internet IPOs for a long term investment is usually a few days or weeks after the IPO, as people holding the IPO shares sell for a profit and the stock settles down.

Just because Facebook will be an expensive stock once it is publicly traded, does not mean that it will be necessarily overvalued or cannot become even more expensive. Google and Apple have demonstrated in recent years that expensive stocks that have strong growth and earnings outlooks can still go up considerably in price. If Facebook lives up to its hype as the next big Internet stock and generates high revenue and profit growth rates, there is no reason why Facebook cannot also continue to move higher for years after its IPO date.

According to Facebook's S-1 filing on February 1, 2012, during 2011, Facebook turned a profit $1 Billion dollars on revenue of $3.7 Billion. Those are impressive profit and revenue numbers. What make them even more impressive is Facebook's high growth rate. In 2008, Facebook lost $56 Million on revenue of just $272 Million. Facebook is now making a hefty profit on ten times the revenue they booked three years earlier.

To grow revenue and profit, Facebook has been able to capitalize on its sizable and growing number of users to increase advertising revenue. Facebooks large database of user preferences helps them attract adverstisers interested in paying for targeted adversting. The next challenge for Facebook will be to increase revenues and earnings from companies that use the Facebook platform to sell their products, such as the online gaming company Zynga Inc.

As more details regarding the Facebook IPO emerge, the future of Facebook after the IPO becomes clearer.