The Facebook IPO
An initial public offering or IPO is the holy grail of many tech companies. Investors and founders become rich, those who get access to the stock on the first day often see instant profits and the company raises significant amounts of working capital for expansion. At least that is the theory. Facebook’s recent IPO was marred by horribly botched execution by NASDAQ who were apparently using untested software to launch the stock amidst the greatest demand ever for a stock on its first day. Though Facebook had raised their offering price from $28 to $38/share in the week before the offering and all of the stock sold out at that higher rate, pundits everywhere declared the IPO a failure because there was no ‘bump’ on the first day where early investors could cash out with big profits merely by having access to the stock. No giveaway in other words.
But what really happened? And is it is a disaster for the company that the stock has dropped to around $27/share after only a few weeks? I don’t think so. Take a minute and read Joe Nocera’s column in the Times about just how successful this IPO was, for Facebook. They now have ten billion dollars to work with. The lion’s share of the risk inherent in a start-up has transferred from the founders and venture investors to millions of shareholders. Unlike most IPOs managed by investment bankers for the sole profit of themselves and a select group of customers, the lion’s share of the money raised went to the company, as it should. If I’m Facebook, that sounds pretty good to me.
On top of all this Mark Zuckerberg still owns 57% of the stock, meaning he is not answerable to anyone for his actions, including shareholders. In most cases this would be an unacceptable outcome except that Zuckerberg’s instincts and long range POV have proven more than right from day one. Why would you emasculate a successful entrepreneur to satisfy a few vocal shareholders?
Facebbok is rapidly approaching 1 billion users out of a total global addressable market of 2.8 billion people with Internet access worldwide, an astounding number. The platform is rock solid considering the loads it handles 24/7. The data they own is off the charts, beating any set of demographic, census, business or behavioral data available to mankind.
The downsides? There are two obvious ones, both fixable. Mobile is the largest medium for accessing the Internet globally and Facebook does not have a strong mobile presence. Their advertising is extremely limited in its scope, effectiveness and originality of execution. But, they have the resources and the intelligence to fix these tactical issues. Even those lousy ads make billions because their user base is so immense and so loyal.
Add in the data, enormous sums of capital, no distracting demands from shareholders and a brilliant team and you’d be making a mistake to underestimate the success of that IPO. If I were Zuckerberg I’d have reason to be quite happy with the results. And in his world no one else matters.