According to the Wall Street Journal, Facebook is preparing to file its IPO (initial public offering) as early as next week, and is close to choosing Morgan Stanley as its account manager. (WSJ Link here)
I know what you’re thinking: “What the fuck does that even mean? What the hell is an IPO?”
So we here at Three Yards, asking the same questions, did a little research because that’s what respectable sarcastic Internet journalists do. According to Investopedia an IPO is best defined as:
“The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded. In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), the best offering price and the time to bring it to market. Also referred to as a ‘public offering.'”
Even so, that seemed to us to have a bit too much investo-jargon. What does this mean to you, the dude or chick who uses Facebook to play Words with Friends and send funny cat pictures to Grandma? Those of you without a business degree from Hahvahd?
Basically, it’s this: Facebook’s owned, right now, entirely by Facebook employees. Including Mark Zuckerberg (who some of you may remember from “The Social Network” as that dude who got Juno pregnant).
Remember him? The guy everyone loves to hate because he “stole Facebook” from the Winklevoss twins and is a soulless, money-grubbing asshole? Yeah, that guy. Anyway, him and every other Facebook employee owns stock in Facebook, but that’s it. All the money they’ve received over the years (that raises Facebook’s overall company “value”) gets recycled by the company. In a public company, Joe Schlo can buy stock at a certain price and that price will either go up or down. If it goes up, there’s the choice to sell or keep, and if you sell you make money. If the price goes down, you either sell or keep, and if you sell you lose money. That’s a simplification of the stock process, but it gets the point across.
The biggest thing when it comes to tech companies like Facebook is the actual value of their IPO. For example, in 2011, Zynga (the company that makes FarmVille, MafiaWars, and owns the souls of nearly 250 million American housewives) set their individual share price for their IPO this past December at $10. That’s right, for less than the price of a movie ticket, you could own a chunk of the company. All told, when the IPO finished, they had raised ONE BILLION DOLLARS. Holy fuck, right?
Usually, companies use an IPO for initial fundraising if they can’t find enough venture capital to make the business work, figuring they’ve accrued enough public interest to sell enough shares to make money. Facebook’s initial value for their soon-to-be-popped IPO is somewhere around $75 to $100 BILLION DOLLARS.
Just so we’re clear here, I’ll use pictures:
In other words, Facebook hopes to raise $10 BILLION dollars, just for themselves. Yeah, in a free market economy stock and the investing process are incredibly healthy ways to make money (not to mention 100% legal) but really, Facebook? $10 BILLION dollars?
So, there it is. Facebook is going public, so if you’d like to get in on the ground floor (relatively speaking) of one of our time’s easiest money-makers, get you some. Look at it this way, stockholders get to have meetings where if they don’t like something about the company’s direction, they can say it. Can you imagine?
Zuckerberg: Okay, the first quarter stockholder meeting is hereby called to order. First order of business?
Granny: Sir, why can’t I see all the funny pictures my grandson sends me on my ceiling, or whatever the whatsit is called?
Zuckerberg: Your Facebook Wall?
Granny: Yeah, that. I want to twat the funny cat pictures to Rosie, who’s in my bridge club. Do you know Rosie? She makes the best scones.
Zuckerberg: Twat? Don’t you mean Tweet? That’s a different company…and no, I don’t know Rosie.
See? I wholeheartedly support the whole IPO idea. Let’s get some public input into social media’s Goliath, even if it takes a little cash to do it.