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Facebook IPO to bring cash and change

16 may 2012, 11:57
0
©AFP
©AFP
Facebook makes its hotly anticipated stock market debut this week in a history-making move promising wealth for insiders and change for users of the online social network, AFP reports.

Hot interest in Facebook stock reportedly prompted the company to bump the opening price range to $34 to $38 for its shares, which would value the firm at between $93 billion and $104 billion.

The Menlo Park, California-company will nail down the initial public offering (IPO) share price before it begins trading as a public company.

The IPO is expected to happen Friday although the timetable has not been confirmed.

Facebook watchers said users of the social network should expect changes -- though not overnight.

"The only reason a company goes public is to raise cash to expand," said Creative Strategies principal analyst Tim Bajarin.

"So, the general public at least knows the IPO means Facebook will be able to do more things.

"Facebook is not extremely specific on what they will do with the money; they say they want to be creative, expand, and do new things."

Facebook will keep the lion's share of the potentially $14.7 billion raised by selling stock. The rest of the cash is to stuff pockets of company founders and investors including rock star Bono.

Mark Zuckerberg, who founded Facebook eight years ago from his Harvard dorm room, will retain 57.3 percent of the voting power of the shares and the IPO was structured to allow him to retain a firm grip on the company.

"He really wants to create an open social network," Bajarin said of Zuckerberg, who turned 28 on Monday. "One that allows Facebook to get more aggressive in the way they connect and provide services to people."

Some analysts predicted Facebook's stock price will jump quickly to $44 a share and climb much higher in the long term.

At the heart of the debate about the wisdom of owning a piece of Facebook is how much revenue it takes in.

Revenue vaulted to $1.06 billion in the quarter which ended March 31 -- an improvement year-over-year, but down about six percent from the previous quarter. Eighty-five percent of the total came from ad sales.

As one analyst noted, however, Facebook only bills a scant half-percent of the $600 billion spent each year on all kinds of advertising -- even though at least one of every seven minutes spent online around the world is at Facebook.

There is wide margin for improvement, seeing as Facebook has more than 900 million users and membership is expanding.

The leading social network is unabashedly working to follow members onto smartphones and tablet computers, and the IPO windfall would provide plenty of cash to partner with a hardware maker on a long-rumored "Facebook phone."

Morningstar analysts concluded that optimism regarding Facebook's prospects was warranted and considered its popularity on mobile devices "impressive."

"Although the company has not actively developed its mobile advertising capabilities, we expect a substantial bulk of mobile advertising dollars to flow to Facebook within the next couple of years," Morningstar said.

Recent Facebook moves have included letting people store digital files in the Internet "cloud" and allowing Microsoft to weave social network feedback into results of Bing-powered searches.

"We've rarely seen a company borrow from its competition as quickly or as well as Facebook," Forrester analysts Nate Elliott and Melissa Parrish said in a blog post on Monday. "And that focus on better serving end users has seen Facebook grow quickly over the years, even in the face of consistent privacy concerns.

"But as good as Facebook has been at evolving to serve consumers, that's how bad it's been at serving marketers."

Facebook has "lurched" from one advertising model to another during the past five years, according to the analysts.

A report over the weekend indicated that Facebook was dabbling with a scheme where advertisers would pay to promote posts at the service in a manner similar to a Twitter model of charging to give "tweets" high profiles.

"We wish we could predict this IPO would serve as a new beginning for Facebook's marketing offering, and that a new focus on becoming a grown-up business would inspire the company to put even half the energy into serving advertisers that it does into serving users," Elliott and Parrish said.

"But we doubt Zuckerberg's going to wake up any day soon having acquired a taste for advertising, or even a proper understanding of it."

Still, there will be no shortage of people snapping up Facebook shares. Even Apple co-founder Steve Wozniak has gone public saying he plans to invest.

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