The Facebook IPO - All You Need to Know

As it stands, Facebook, the world’s third most populated ‘country’, after China and India, is going public by means of an IPO – Initial Public Offering. 

The social networking giant will start trading on the NASDAQ under the ticker FB. It has set a price range of $28 to $35 per share. However, it is expected that the stock will trade higher than the offering price, in the range of $34 to $38 per share.

In terms of pure numbers, Facebook is going to sell more than $15 billion worth of shares to investors. AT&T Wireless, the current technology IPO leader, had raised more than $10 billion in 2010. As a result, Facebook’s valuation is expected to hit the $90 billion to $100 billion range – and may even go upward – depending on the actual price at which the stock trades. This offering of 421 million shares is likely to be the biggest venture-backed Internet IPO in history of all time. Shares are going to be priced today, on May 17th, with trading commencing from the 18th of May.

Facebook recently crossed the 900 million users mark, thereby giving credence to the opening factoid of this article. The company has not made its intentions clear about what it intends to do with the money, only mentioning that it may use the cash for acquisitions and expansion, to state a few.

However, this IPO is not as much of a golden egg as far as small investors are concerned. To get the shares at the offer price, you’ll need a lot of money – or friends in Facebook, high up the influential ladder – or a large account with one of the banks or brokerage firms which are directly involved in the IPO. Of course, you can buy shares once FB begins trading on the NASDAQ. Doing this would mean having to pay much more than the offering price.

Privacy Concerns
What needs to be understood is that this valuation is going to put tremendous pressure on the company to keep increasing sales and profits at a fast rate. This directly translates to more advertising on the site. Facebook has never been very forthcoming in terms of user privacy and has often found itself in the middle of privacy issues raised by users after Facebook had made changes to the site layout and various other account features.

The only real way to make money from advertising is by finely targeting its ads towards the user. To do this, it needs even more information about its users and make optimum usage of the information it already has. Facebook has practically all the details about a user, ranging from user demographic to the food outlets they prefer and the sports they like. Also, user-tracking off the website, through the omnipresent ‘Like’ button is another issue that has been raised in the past.

Advertiser concerns
Looking at the importance of ads for Facebook, it comes as a bit of a shocker when you realize that advertisers have actually been questioning the effectiveness of Facebook ads in garnering user interest. GM has already decided to take down its advertisements from FB, while maintaining its pages. The bitter truth remains, how many users actually click on ads? It is definitely not the majority.

FB on the go
Almost half of Facebook’s daily users log in from a mobile device. Mobile is one area where Facebook hasn’t made as much of an inroad as it would have liked. The mobile app is half decent at best, and mobile advertising is still in an infant stage. Mobile internet is pretty much a virgin when it comes to monetization on a similar note to the Web version, where ads are highly targeted and contextual.

Overwhelmed already
While there is no question that social media has become an essential part of our lives, it is also a fact that people are getting overwhelmed by its impact. There are a slew of social networking sites out there. There is a legion of people who use Facebook only for the bare minimum purpose of keeping in touch with friends. Twitter, Google+, Path, Pinterest etcetera are other sites which have added to the dilemma of Internet users. Add to that Facebook’s recent acquisition of Instagram for $1 billion, where it is still unclear as to how FB plans on using Instagram as a profit generating machine.

Money and future
A recently conducted survey showed that more than 50% of Americans think that the issue is over-priced. This also includes people who are regular traders. All this talk of money-making means the Facebook experience is going to become more commercial as the days pass. The latest feature which is being tested by Facebook, the ‘promoted status update’, involves users paying to have their updates made visible to more people in their friend lists.

Whether the shares will sustain in the long run is a very doubtful issue. Undoubtedly, tomorrow is going to be a great day for Facebook, its founder and its investors. However, the future of the company and how much it may further expand is a case of genuine concern, as the company is at a peak right now. More and more people are beginning to think that Facebook is a passing fad, and nothing more than that. Let’s wait and watch.