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Facebook’s $100B IPO...A Far Cry From Netscape’s

Updated on December 28, 2011

In the second quarter of next year, Facebook, the social networking juggernaut, will be “faced” with an interesting economic dilemma: either remain a “private company” and remain in the hands of (a select few 500 or so) “private shareholders” or “go public” and become one of the only such publicly traded technology firms—behind Apple and Google—to reach a company valuation beyond the $100 billion threshold. Company valuation? It’s the number of shares outstanding times the price of the stock: a stock price many from within Silicon Valley’s technocrat social elite predict will be at or near Google’s $85 per share IPO stock price a few years back. Why such a brazen move, now, by Facebook—a company currently valued at a staggering $66.6 billion? The answer to this one—although trivial to say the least—seems obvious: total social networking market domination. Such a move will put Facebook on par with its Silicon Valley nemesis in Google—to establishing a monopoly in everything on the web “social” and “networking.” Also, an IPO for Facebook, one of world’s premier technology firms can only further enrich the company’s founders. Put yourself in Mark Zuckerberg’s shoes—not even 30 years his own senior and already “breaking bread “ with Bill Gates and Warren Buffet---a successful IPO by his company, damn near, puts him in the land of “El Gordo Carlos Slim.“ The moniker “El Gordo” isn’t in reference to Mexican magnate’s physical size either: if you know anything about the Mexican born Lebanese decent “kazillionarie”—aka, the richest man in the world—you’ll know why he wouldn’t rebuke such a label. Just like Slim, Zuckerberg—if Facebook’s 2012 IPO pan’s out well—could indeed make a claim to having one of the world’s “fattest pockets.” Historical Review: It All Started With Netscape

A little more than 15 years ago, in the era’s state of infancy, one of the very first companies that attempted to capitalize on the World Wide Web was Netscape. Originally founded under the name Mosaic Communications Corporation, Netscape, after securing its first round of venture capital, moved on to the next phase of the financial start-up pyramid, which was to take the company public through an Initial Public Offering (IPO). Initially, Netscape’s stock was set to be offered at $14 per share but, at the last minute—for some odd reason—the stock doubled to an initial offering of $28 per share. On the very first day of trading—in a kind of odd twist of fortune—the stock's value climbed to an astonishing $75 a share. Not only did this represent close too a record for first day gains but it also metaphorically helped burnish the idea that the World Wide Web (from the perspective of Wall Street investors) was a means to an extreme financial end. The first day trading of Netscape not only perplexed the financial world, but it paradoxically stunned investors from the west to the east coast and you’ll find very few cynics that wouldn’t give some credence to the fact that Netscape was the first company that kicked off the “” big dance thereby kicking off today’s “new wave” of internet IPOs—by such astounding firms as Google, Netflix, Groupon, Zynga and now Facebook.

Advantages of an Initial Public Offering

This new wave of internet “hot air” bubble knows one thing: unlike being a privately owned corporation, a publicly owned corporation offers a broader range for raising capital; therefore, leading (in the long-term) to increased financial stability. Some financial stability—through an IPO, you “only” have access to the single biggest source of capital in the United States—thus the world over. In addition, a successful IPO creates an objective market price/value for the company—i.e., Google’s stock price is worth $85 per share and the overall company is currently valued at $200 billion. Also, public companies are viewed as long-term providers of quality driven services & products thus investors want to invest in a company that has staying power.

Traditional IPO vs. Non-Traditional IPO

The traditional IPO isn’t a financial picnic: by most company’s standards, it’s quite a complex process. An auspicious company looking for big returns will first find it’ll have to dish out several hundred thousand dollars of its own money before an underwriter will commit itself to buy even one share of stock. What’s an underwriter? An underwriter involves one or more investment banks—i.e., Goldman Sachs, Merrill Lynch, etc—working on behalf of the “issuer” to sell its shares to the public. Although underwriters will estimate the price at which the securities can be sold early in the registration process, they will not legally commit themselves until the SEC declares the registration statement effective. This is after most of your out-of-pocket costs have been incurred. The public offering price will be determined based upon market conditions existing at the time the SEC declares the registration statement effective. These market conditions may be drastically different than those existing at the time the IPO process began. Thus even the best advanced planning and the most prudent selection of an underwriter may not be sufficient to insure a successful IPO.

A non-traditional IPO is anything but traditional—that is to say, if traditional still means customary, a non-traditional is about as innovative as they come. Ever heard of OpenIPO? As the name implies, OpenIPO—as pioneered by the investment bank WR Hambrecht + Co—is “opened” to individuals and institutions through an efficient and equitable process. Using an auction process such as OpenIPO does have its advantages, but many traditional investment banks have balked at the idea of using an auction process. Taking a page out of Google’s playbook, Facebook may consider using a more nontraditional structure. Which one's better for Facebook? Saying which one’s better for Facebook is like two French kids arguing about what’s the better of the two elite universities in Paris: Sorbonne or Science Po. I guess it just all depends on the magnitude in which one’s needs are met in that particular area for that particular time frame.


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