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Master of Business Administration Master Business Administration for Executive (Chiang Mai) Faculty of Business Administration Chiang Mai University March, 2012

Facebook’s Capitalization
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Thanassorn Boontarika Pinnarat Sathit Saowaluk Hathairat Ratanasirisap Pongpaew Suriyachot Chobpimai Sangkuan Yosdech Code Code Code Code Code Code 541532126 541532137 541532142 541532155 541532164 541532176

Report to Dr. Chaiwuth Tangsomchai

Course work 702711 Financial Management) Master of Business Administration for Executive(Chiang Mai)

Business Administration Chiang Mai University March, 2012

- - Index - Page Chapter I Introduction & Objective 1.1 Introduction 1.2 Objectives Chapter II Company 2.1 Facebook, Inc. Profile 2.2 The Corporate Mission 2.3 Executive Officer and director 2.4 Facebook’s Shareholder 2.5 Facebook Milestone 2.6 Facebook Business 2.7 Competition 2.8 Revenues Stream 2.9 Facebook Market Opportunities 2.10 Facebook Strategy 2.11 Summary of Risk Factor Chapter III Facebook Financial Report 3.1 Consolidated Balance Sheets 3.2 Consolidated Statement of Income 3.3 Basic Earning Per Share 3.4 Pro-forma Earning Per Share 3.5 Consolidated Statement of Cash Flow 3.6 Consolidated Statement of Stockholder’s Equity 3.7 Dividend Policy Chapter IV Facebook Initial Public Offerings(IPOs) 4.1 IPOs Advantage 4.2 Preparing to go to Public 4.3 Facebook IPOs 4.4 Facebook IPOs Underwriting Company 4.5 Facebook IPOs Counsel Company 4.6 Facebook IPOs Financial Auditor 4.7 Why Facebook go to Public? 4.8 U.S. Stock Market 4.9 Which Market Facebook Plan to Listing? 4.10 Facebook IPOs Advantage and Opportunities Chapter V Conclusion Reference 1 2

3 3 3 4 5 7 7 8 9 10 10

12 14 15 16 17 18 19

21 22 23 24 27 27 28 29 30 33 34 36

1.1 Introduction

Nowadays, firms objective generally relate with the firm financial management, firm objectives aim to provide maximize shareholder wealth and firm financial management aim to get returns in satisfy level from investment. Financial department responsibly set up company goals to make profit and liquidity cash flow. Managements have to forecast the company needs such as anticipating, acquisition for lowest cost of fund (WACC), then allocate to the project through effective capital budgeting. Investments in different project areas are needs more fund. There are many source of fund firm could be raise. Firstly, the company budgeting comes from internal source which is retained earning. However, if internal fund is not cover up, external source will be the alternate. There are many ways to funding from outside for example IPO, warrant and bank loan which are different advantages, disadvantages and has some limited. Facebook, the social network under website “” was founded by Mark Zuckerberg Recently, Facebook which develop from a small social network in campus. While he studied in Harvard University. Facebook began popular in Harvard and expanded to other colleges in USA and Europe and become the number one social media in the world. February 2004, facebook official website launched in operated and privately owned by Facebook Inc.

It has more than 845 million active users and expected rise to 1 billion users on 31 December 2012, (one in seven of world’s population). Facebook main revenues and profit is from display adds, the more increasingly user the more profitability gain. Year 2011, Facebook demonstrated the outstanding cash flow over $3.7 billion dollar which, provided over $1 billion dollar net income. Moreover, popularly trend seems to continuous rising as a result of the technology development and 24 hours demand from mobile device. It indicates that Facebook necessitate to prepare their system to clarify the number of internet user especially, system improvement to reduce risky and enlarge the competitive advantage. Thus, Facebook delivered their filed in SEC on 1st February 2012 by introduced $5 billion dollar IPOs stock. It is a history of the public raising funds which lead to this research attention.

1.2 Objectives 1) To study, Facebook financial structure 2) To learn, the reason of Facebook set up IPOs 3) To revision, operating risk in the area of Internet securities : Social Network 4) To understand capitalization via Capital Market 5) To discover benefit and important of changing corporate to public company 6) To study American Capital Market (NYSE and NASDAQ) 7) To comprehend Investment bank which is the most influence of the world.


2.1 Facebook, Inc. Profile
Cambridge, Massachusetts, United States (2004) Mark Zuckerberg Eduardo Saverin Dustin Moskovitz Chris Hughes Headquarters 1601 Willow Road Menlo Park, California 94025 (650) 308-7300 Launched February 4, 2004 Key people Mark Zuckerberg (CEO) Sheryl Sandberg (COO) David Ebersman (CFO) Donald Graham (Chairman) Industry Internet Employees 3,200 person (approx.) (2011) Advertising Banner ads, referral marketing, casual games Dividend Policy Never declared or paid cash dividends on capital stock Total Asset 6,331 million US$ (2011) Total liabilities 1,432 million US$ (2011) Stockholders’ equity 4,899 million US$ (2011) Revenue US$ 3.71 billion (2011), up from $1.97b (2010) Net Profit US$ 1 billion (2011) Source: Facebook, Inc. and Wikipedia, 2012 Founded Founder(s)

2.2 The Corporate Mission
Facebook mission is to make the world more open and connected

2.3 Executive Officers and Director
Name Mark Zuckerberg SherylK. Sandberg DavidA. Ebersman David B. Fischer Mike Schroepfer Theodore W. Ullyot Marc L.Andreessen (1)(3) Erskine B. Bowles(1) James W. Breyer(2) Donald E. Graham*(2)(3) Reed Hastings PeterA. Thiel Age 27 42 42 39 36 44 40 66 50 66 51 44 Position(s) Chairman and CEO Chief Operating Officer Chief FinancialOfficer Vice President, Marketing and Business Partnerships Vice President of Engineering Vice President, General Counsel, and Secretary Director Director Director Director Director Director

Remarks: * Lead Independent Director. (1) Member of the audit committee. (2) Member of the compensation committee. (3) Member of the governance committee. (As of January 1, 2012)

4 2.4 Facebook’s Shareholder

Source:, 2012

5 2.5 Facebook Milestone
February. Founded under name at Harvard University September. Introduced the Facebook wall. a forum for users to post messages to their friends Began expand to colleges and universities around country Recorded $ 382,000 Revenue


May. Grew to support more than 800 college networks September. Added high school networks October. Added international school networks and introduced Photos Recorded $ 9 million in revenue


April. Launched Facebook Mobile May. Expanded Facebook’s availability to workplace networks August. Rolled out: first version of the Facebook API September. Operned registration broady; introduced News Feed November. Launched Share frature on over 20 partner sites Recorded. $48 millions in revenue

12 MM MAUs

May. Launched the Facebook Platform with 65 developers and 85 application November. Launched self-service ad platform and Facebook pages Recorded $153 million in revenue

58 MM MAUs

April. Introduced Chat for user to instant message with friends December. Laucnched Facebook connect, the next generation the Facebook platform Expanded to 23 languages offered including French, German, and Spanish Recorded $272 million in revenue

145 MM MAUs

February. Introduced the Like button, which lets users connect with things the care about both on and off Facebook May. Launched Facebook Payments Recorded $777 million in revenue

360 MM MAUs

April. Introduced Graph API. a new programming interface for the Facebook platform, and social plugins. a set of easy-to-be-use modules allowing anyone to integrate with the Facebook Platform October. Launched Groups, a shared space for users to discuss common interests. Recorded $1,974 million in revenue

660 MM MAUs

September. Introduced Timeline, an enhanced and update version of the Facebook Profile September. Launched the next Open Graph Recorded $3,711 million in revenue October. Launched Groups, a shared space for users to discuss common interests. Recorded $1,974 million in revenue

845 MM MAUs

Monthly Active Users(MAUs) at year end


Facebook Status @ the end of 2011
845 Million Monthly active users as of December 31, 2011 an increase of 39% as compared to 608 million MAUs as of December 31, 2010 2.7 Billion Likes & Comments per day average during the three months ended December 31, 2011 250 Million Photos uploaded per day 100 Billion Friendships 483 Million daily active users (DAUs) on average in December 2011,an increase of 48 % as compared to 327 million DAUs in December 2010 Facebook had more than 425 million MAUs who used Facebook mobile products in December 2011 Source: Facebook, Inc.

7 2.6 Facebook Business
The Facebook business generates revenues by creating values into three core areas of their business are; 1) Create Value for Users through Social Network Website: People subscribe to use Facebook and connecting to other people or thing their interest, provided as a free of charge. 2) Create Value for Developers through the Facebook Platform: The Facebook Platform is a set of development tools and application programming interfaces (APIs) that enables developers to easily integrate with Facebook to create social apps and websites and to reach Facebook’s users. Platform developers build experiences that allow users to connect and share with friends while engaging in a wide range of activities. 3) Create Value for Advertisers and Marketers: Facebook offer advertisers and marketers a unique combination of reach, relevance, social context , and engagement Since user subscribes and log in to using Facebook, they keep user profile and user sharing then display relevant advertising on user side page. When ads displayed and/or click by user, then it is generate revenues to Facebook.

2.7 Competition
Facebook face significant competition in almost every aspect of its business, including from companies such as Google, Microsoft, and Twitter, which offer a variety of Internet products, services, content, and online advertising offerings, as well as from mobile companies and smaller Internet companies that offer products and services that may compete with specific Facebook features. The firm also faces competition from traditional and online media businesses for a share of advertisers’ budgets and in the development of the tools and systems for managing and optimizing advertising campaigns. They compete broadly with Google’s social networking offerings, including Google+, which it has integrated with certain of its products, including search and Android. In addition, they compete with other, largely regional, social networks that have strong positions in particular countries, including Cyworld in Korea, Mixi in Japan, Orkut (owned by Google) in Brazil and India, and vKontakte in Russia. As they introduce new products, as Facebook existing products evolve, or as other companies introduce new products and services, Facebook may become subject to additional competition. The areas in which Facebook compete include; 1) Users and Engagement. Facebook compete to attract, engage, and retain users. Because its products for users are free of charge, the firm competes based on the utility, ease of use, performance, and quality of its products.

2) Advertising. Facebook compete to attract and retain advertisers. The firm distinguish its products by providing reach, relevance, social context, and engagement to amplify the effectiveness of advertisers’ messages 3) Platform. Facebook compete to attract and retain developers to build compelling apps and websites that integrate with them. The firm compete in this area primarily based on the value of the tools and APIs we provide to developers to enable them to access our large global base of engaged users and their connections and to drive traffic to their apps and website

2.8 Revenues Stream
Facebook’s Revenues 3.7 billion US$, 39.4 percent year-over-year growth in Facebook’s net income (read: profit) from 2010 to 2011.

Net Profit 1 billion US$ in 2011 46.8 percent year-over-year growth in Facebook’s revenue from 2010 to 2011.



Revenues Breakdown (2011) Facebook’s most revenues come from display advertising around 85% and payment an other fees 15%
Display advertising Payment and fees

Revenues Advertising Payments and other fees Total

Year Ended December 31, 2009 2010 % Chg 2011 % Chg 764 1,868 145% 3,154 69% 13 106 715% 557 425% 777 1,974 154% 3,711 88%

Facebook Ad System. When advertisers create an ad campaign with Facebook, they specify the types of users they would like to reach based on information that users chose to share about their age, location, gender, relationship status, educational history, workplace, and interests. For example, a self-storage company ran a campaign to reach students on college campuses prior to summer break. Additionally, advertisers indicate the maximum price they are willing to pay for their ad and their maximum budget. Advertisers choose to pay for their ads based on either cost per thousand impressions (CPM) on a fixed or bidded basis or cost per click (CPC) on a bidded basis. Facebook system also supports guaranteed delivery of a fixed number of ad impressions for a fixed price. Facebook’s ad serving technology dynamically determines the best available ad to show each user based on the combination of the user’s unique attributes and the realtime comparison of bids from eligible ads.

2.9 Facebook Market Opportunities
Advertising Market Opportunity Advertisers’ objectives range from building long-term brand awareness to stimulating an immediate purchase. Facebook offers advertising solutions that are designed to be more engaging and relevant for users in order to help advertisers better achieve their goals. Facebook’s combination of reach, relevance, social context, and engagement gives advertisers enhanced opportunities to generate brand awareness and affiliation, while also creating new ways to generate nearterm demand for their products from consumers likely to have purchase. Market Opportunity for Payments When users purchase virtual and digital goods from Facebook’s Platform developers using Facebook Payments infrastructure, they receive fees that represent a portion of the transaction value. Currently, substantially all of the Payments transactions between their users and Platform developers are for virtual goods used in social games. According to an In-Stat report dated November 2010, the worldwide revenue generated from the sale of virtual goods on social networking sites, online worlds, and casual games increased from $2 billion in 2007 to $7 billion in 2010, and are forecasted to increase to $15 billion by 2014. Facebook currently require Payments integration in games on it and may seek to extend the use of Payments to other types of apps in the future. (Source: Facebook, Inc., 2012)

11 10 2.10 Facebook Strategy
Facebook has a significant opportunity to further enhance the value they deliver to users, developers, and advertisers. Key elements of Facebook strategy are: 1) Expand Global User Community 2) Build Great Social Products to Increase Engagement 3) Provide Users with the Most Compelling Experience 4) Build Engaging Mobile Experiences 5) Enable Developers to Build Great Social Products Using the Facebook Platform 6) Improve Ad Products for Advertisers and Users (Source: Facebook, Inc., 2012)

2.11 Summary of Risk Factor
Facebook business is subject to numerous risks that can be summarized follow; 1) If Facebook fail to retain existing users or add new users, or if our users decrease their level of engagement with Facebook, our revenue, financial results, and business may be significantly harmed; 2) Facebook generate a substantial majority of revenue from advertising. The loss of advertisers, or reduction in spending by advertisers with Facebook, could seriously harm our business; 3) Growth in use of Facebook through mobile products, where facebook do not currently display ads, as a substitute for use on personal computers may negatively affect its revenue and financial results; 4) Facebook user growth and engagement on mobile devices depend upon effective operation with mobile operating systems, networks, and standards that Facebook does not control; 5) Facebook may not be successful in its efforts to grow and further monetize the Facebook Platform; 6) Facebook business is highly competitive, and competition presents an ongoing threat to the success of its business; 7) Improper access to or disclosure of Facebook users’ information could harm reputation and adversely affect its business; 8) Facebook business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection, and other matters. Many of these laws regulations are subject to change and uncertain interpretation, and could harm its business; 9) Facebook CEO has control over key decision making as a result of his control of a majority of its voting stock; 10) The loss of Mark Zuckerberg, SherylK. Sandberg, or other key personnel could harm its business; 11) Facebook anticipate that they will expend substantial funds in connection with tax with holding and remittance obligations related to the initial settlement of its restricted stock units (RSUs) approximately six months following Facebook initial public offering;

12) The market price of Facebook Class A common stock may be volatile or may decline, and investor may not be able to resell theirs shares at or above the initial public offering price; and 13) Substantial blocks of facebook total outstanding shares may be sold into the market as “lock-up” periods end, as further described in “Shares Eligible for Future Sale.” If there are substantial sales of shares of Facebook common stock, the price of Class A common stock could decline. (Source: Facebook, Inc., 2012)

3.1 Consolidated Balance Sheets

Source: Facebook, 2012

Balance Sheets Comment
Total Assets Liabilities Stockholder’s equity $ 6,311 $ 1,432 $ 4,899 million million million

When look at asset: at 2011 year end, Facebook has a large amount of cash and cash equivalents plus marketable securities as (1,512+2,396) = $3,908 million Liquidity = current asset / current liability = 4,604 / 899 = 5.12 x (good liquids) = Total liabilities / Stockholder’s equity = 1432 / 4,889 = 0.088 (Very low financial leverage)


The company has no long term debt. Indicated they have very flexible in financing in the future when they needs more funds for business expanding. Year 2012 Facebook had expanded server and network around the world inline with rapid growth of its user and they moved to new head office in California. Conclusion: Facebook has a good financial position.

14 3.2 Consolidated Statements of Income

Income Statement Comments
Year 2011 (in $ million) Total Revenues Total Costs and expenses Income from operation Interest+other Tax Net income Comment: Operating profit Interest Net income ROA (1,000 / 6,311 ) ROE (1,000 / 4,899) $ $ $ $ $ $ 47.3% 1.6% 26.9% 15.8% 20.4% 3,711 1,955 1,756 61 695 1,000 100.0 52.7 47.3 1.6 18.7 26.9 % % % % % %

very high very low (no long term debt) high good very good

*** Facebook has a good profitability and high ROA, ROE and very attractiveness.

15 3.3 Basic Earning Per Share

16 3.4 Pro-forma Basic Earning Per Share

17 3.5 Consolidated Statements of Cash Flows

Comment: Facebook has a very good cash flow from operation, excess cash are investing in marketable securities, this amount is internal fund prepared for invest in new projects.

18 3.6 Statements of Stockholder’s Equity

19 3.7 Dividend Policy
Facebook has never declared or paid cash dividends on its capital stock. They currently intend to retain any future earnings for use in the operation of its business and do not intend to declare or pay any cash dividends in the foreseeable future.


4.1 IPOs Advantage traded companies. In addition, research analysts at broker-dealers will begin to write reports on the stock and the company, thus raising the profile of the company. Broader coverage across various sources will likely enhance the company’s visibility, market share and competitive position. 4) Public currency for acquisitions Once the company is public, it can use its common stock to acquire other public or private companies in conjunction with, or instead of, raising additional capital. 5) Enhanced benefits for current employees Stock-based compensation incentives align employees’ interests with those of the company. By allowing employees to benefit alongside the company’s financial success, these programs increase productivity and loyalty to the company and serve as a key selling mechanism when attracting top talent. Furthermore, issuing equity-based compensation will allow the company to attract top talent without incurring additional cash expenses.

1) Access to capital One of the most common reasons for going public is to raise primary capital to fund organic growth, repay debt or fund an acquisition. Further direct results include the following: Once the company is public, it has access to an entirely new, incredibly deep and liquid source of capital for any future needs it may have. Adding equity to the company’s capital-raising toolkit helps equip the company with the tools to achieve optimal capital structure. 2) Increased Liquidity The IPO can be structured such that existing owners of the company can exit their position and receive proceeds for their shares. In addition, once the company is public, the existing owners have a public marketplace through which they can liquidate their holdings in a straightforward and orderly fashion at any time. 3) Branding event The company will receive worldwide media coverage through the financial markets, which provide constant live coverage on publicly (Source: NYSE-Euronext, 2010)

21 4.2 Preparing to go to Public firm around their relationship with the company and the integrity of the financial Underwriters: The Company should carefully choose its book runner(s), also sometimes referred to as lead manager(s), given the significant role that they play throughout the process. (b) Identifying investor relations Public companies have a fiduciary responsibility to their stakeholders to maximize shareholder value. At the same time, they must promote good corporate governance and implement effective disclosure practices 3.2.2 Building financial reporting Infrastructure (a) Financial information (b) Transition to being a public company (c) Summary: Becoming a public company often requires management to make numerous improvements to business processes and the underlying systems as they react to the demands of investors, government regulators and other stakeholders.

3.2.1 Choosing advisor (a) Retention of advisors/service providers A large team of professionals is typically involved in the initial public offering (IPO) process, including lawyers, auditors, underwriters and insurance brokers. The company should carefully consider the qualifications of all parties it hires, given the importance of the advice they will provide throughout the process. The key advisors/service providers that the company and board need to evaluate and hire are company counsel, auditors and underwriters. Company counsel: work in concert with the company’s general counsel to represent the company’s legal interests throughout the process. Auditors and accountants: The independent accountants are involved in performing an audit on certain of the financial statements prepared by management and providing comfort on certain elements derived from the company’s records subject to internal controls over financial reporting and included in Form S-1. The underwriters and lawyers will conduct in-depth diligence with the accounting (Source: NYSE-Euronext IPOs Guide, 2010)

22 4.3 Facebook IPOs

As Facebook filed with the U.S. Securities and Exchange Commission on March 7, 2012 Amendment No. 2 to Form S-1 REGISTRATION STATEMENT Under The Securities Act of 1933 of United State of America. Facebook, Inc. is offering COMMON STOCK CLASS A under the symbol “FB.” Notes: Facebook has two classes of common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except voting and conversion rights. Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to ten votes and is convertible at any time into one share of Class A common stock (Source: Facebook, Inc., 201)

Estimated raising $5 billion in the IPO. And may be rising to $10 billion
Facebook an initial public offering (IPO), Although the company aims $5 billion, that number could rise as high as $10 billion, depending on investor demand. Facebook’s IPO will rising to the top of the tech world, would be the largest Internet IPO in history which would give it an estimated market capitalization between $75 billion and $100 billion similar to that of fast-food chain McDonald’s. A $100 billion price tag would hardly be cheap, but other tech giants are worth more: Google’s market capitalization is $190 billion, Microsoft’s $250 billion and Apple’s $425 billion.

Facebook is currently trading at a valuation of $89.4 billion on Shares post, a private market, but the company could be worth as much as $100 billion or more after the IPO, once public investors get a chance to buy a piece of the company for the first time. That would make its market capitalization greater than iconic American companies like McDonald, Citigroup, and Kraft Foods. It would also turn founder and CEO Mark Zuckerberg into one of the richest people in the world, with an estimated net worth of well over $20 billion. (Time 2012)

Business News By Sam Gustin, February 1,

Market Capitalization (Facebook $90 billion, estimated)

⊳ Facebook employs only around 3,200 staff, giving it average revenue of $1.2m per person in 2011. Mark Zuckerberg, the company’s founder and CEO, owns a 28% stake, which will be worth about $28 billion. (Source: Facebook, 2012)

People are now spending far more time on Facebook than on rival web services such as Google (Source: Myvoiceoflife, 2012)

24 4.4 Facebook IPOs Underwriting ( Investment Bank)

Morgan Stanley & Co. LLC is acting as representative, have severally agreed to purchase, and Facebook and the selling stockholders have agreed to sell to them. Joint book runners are; Goldman, Sachs & Co., J.P. Morgan Securities LLC Merrill Lynch, Pierce, Fenner & Smith Incorporated with Barclays Capital Inc. Allen & Company LLC Citigroup Global Markets Inc. Credit Suisse Securities (USA) LLC Deutsche Bank Securities Inc. RBC Capital Markets, LLC Wells Fargo Securities, LLC Blaylock Robert Van LLC BMO Capital Markets Corp. C.L. King & Associates, Inc. Cabrera Capital Markets, LLC CastleOak Securities, L.P. Cowen and Company, LLC. The Williams Capital Group, L.P. William Blair & Company, L.L.C. The Global Largest Investment Bank The following are the largest full-service global investment banks; Full-service investment banks usually provides both advisory and financing banking services, as well as the sales, market making, and research on a broad array of financial products including equities, credit, rates, currency, commodities, and their derivatives: Bank of America Barclays Capital BNP Paribas Citigroup Credit Suisse Deutsche Bank Goldman Sachs JPMorgan Chase Merrill Lynch, Pierce, Fenner & Smith Morgan Stanley Nomura Securities UBS Wells Fargo Securities

Lazard Capital Markets LLC Lebenthal & Co., LLC Loop Capital Markets LLC M.R. Beal & Company Macquarie Capital (USA) Inc. Muriel Siebert & Co., Inc. Oppenheimer & Co. Inc. Pacific Crest Securities LLC Piper Jaffray & Co. Raymond James & Associates, Inc. Samuel A. Ramirez & Company, Inc Stifel, Nicolaus & Company,

Morgan Stanley hired by Facebook as IPO Representative

25 Investment Bank Comparison

Source: Wall street journal, 2012

Source: Wall street Journal, 2012

Only in U.S.

Source: Wall street Journal, 2012

26 Three main function of Investment Bank in IPOs Process
Three main functions or roles investment banks play in the IPO process and these include: Underwriting, Distribution and, Advice and Counsel. Underwriting: This is the insurance function of bearing the risk of adverse price fluctuations during the period in which a new issue of securities is being distributed. There are two fundamental ways of doing this, and they are the firm commitment and best efforts underwriting agreements. The firm commitment agreement obligates the investment banker to assume all the risks inherent in the issue. On the other hand, the best efforts agreement absolves the investment banker from any risks in the issue. Under this underwriting agreement, the investment banker undertakes to help sell at least a minimum amount of the issue with any unsold amounts returned to the issuing firm. Where the investment banker is not able to sell the minimum quantity agreed upon, the whole issue is cancelled and reissued when the market is ready to accommodate the issue. Distribution: Another related function to the one described above is the ability of the issuing firm to reach as many investors as possible with its security. Investment banks play a very crucial role for IPO, because of their expertise in doing this relative to the issuing firm assuming this responsibility when issuing securities. Advice and Counsel: This involves the investment banker making valuable inputs into decisions concerning its client ability to succeed in the capital market with an IPO. Its ability to make valuable inputs in this direction may largely depend on its experience in origination and selling of securities. (Source: JOSHUA ABOR, 2010)

27 4.5 Facebook IPOs Counsel Company

The validity of the shares of Class A common stock offered hereby will be passed upon for Facebook by Fenwick & West LLP, Mountain View, California. Simpson Thacher & Bartlett LLP, Palo Alto, California is acting as counsel to the underwriters.


Facebook IPOs Financial Auditors.

Ernst & Young LLP, independent registered public accounting firm, has audited Facebook consolidated financial statements at December 31, 2010 and 2011, and for each of the three years in the period ended December 31, 2011, as set forth in Ernst & Young LLP report. Facebook has included its financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP’s report, given on their authority as experts in accounting and auditing. Comments: Facebook hired Ernst & Young LLP as financial auditor; The Firm is in Big 4 Audit Firms in The World with 2011 revenues $22.9 billion and worth around $ 7 billion. Ernst & Young LLP Rank no. 3 by Revenues Revenues Fiscal Firm Employees Headquarters (2011) Year PwC (officially $29.2bn 169,000 2011 United Kingdom PricewaterhouseCoopers) Deloitte Touche Tohmatsu $28.8bn 182,000 2011 United States Ernst & Young $22.9bn 152,000 2011 United Kingdom KPMG 22.89 140,760 2012 Netherlands Source: Wikipedia, 2012

Top Ten Public Accounting ranked by net revenue in 2011

Source:, 2011

28 4.7 Why Facebook go to Public?
Because the company has given out different types of non-cash compensation at different times and changed its rules across the years Mark Zuckerberg will be more powerful as a public company: Apple under the late Steve Jobs should be the model for Zuckerberg. Steve job who has a great powerful to control the product design e.g. iphone, ipad, etc. that make him as a most powerful to control the company. Mark Zuckerberg may be too. Moreover, Facebook would suddenly see its pile of cash balloon by $10 billion. That's important, given that the consumer Internet has in some ways become a battle of titans-Google, Facebook, Apple, Amazon, and Microsoft--all of which are sitting on mountains of cash. Facebook has been buying up lots of smaller companies with cash-sometimes for the product, sometimes for the engineers--and a sudden cash infusion would let Zuckerberg pick up the speed on that front. But empowered with cash and stock, Zuckerberg could also think bigger and, if needed, start making Google-sized acquisitions.

Paul Sloan was wrote in CNET News website on January 31, 2012 give an opinion the three main reasons that Facebook going to public; The SEC rule: The key reason Facebook is going public is because of an antiquated Securities and Exchange Commission rule from 1964; any private company with more than 500 "shareholders of record" must adhere to the same financial disclosure requirements that public companies do. That means filing detailed quarterly and yearly financial reports, and dealing with all the scrutiny that comes with a powerful company opening its books. Facebook passed the 500 number at the end of 2011, The Company could adhere to stricter disclosure rules without selling shares to the public, but that's just not practical. Employees will breathe a sigh of relief: One big upside is that many employees can start cashing out, and the newfound wealth of a successful Facebook IPO would be widespread enough that it should be easy to spot.

29 4.8 U.S. Stock Market : NYSE and NASDAQ

The Most important of U.S. stock exchange market are; NYSE-ERONEXT: New York Stock Exchange-Euronext NASDAQ OMX: National Association of Securities Dealers Automated Quotation (system) AMEX: American Stock Exchange * (was takeover by NYSE)

From a glance, the difference between the New York Stock Exchange (NYSE) and Nasdaq may not be marked. The NYSE lists household names like Coca-Cola, WalMart, Citicorp, and General Electric, whereas the Nasdaq is home to many of the tech giants such as Microsoft, Cisco, Intel, Oracle and Sun Microsystems. Besides the heavy tech weighting, the fundamental difference between the two exchanges is in the way securities are traded. (Source:, 2009)


The NYSE is operated by NYSE Euronext which was formed by the NYSE's 2007 merger with the fully electronic stock exchange Euronext. The New York Stock Exchange, commonly referred to as NYSE is a stock exchange located at 11 Wall Street, Lower Manhattan, New York City, New York, United States. It is by far the world's largest stock exchange by market capitalization of its listed companies at US$15.2trillion as of Dec 2011. Average daily trading value was approximately US$153 billion in 2008 The NYSE is an auction market that uses floor traders to make most of its trades. Each stock on the NYSE has a specialist; this is a person who oversees and facilitates all of the trades for a particular stock. If you wish to buy a stock that trades on the NYSE, your broker will either call your order to a floor broker, or enter it into the (Source: DOT system………..,2009) NYSE Euronext won 56 percent of U.S. initial offerings in 2011 and has claimed more than half every year since 2008, according to Ipreo Holdings LLC, which provides markets data and analytics. The company accounted for 74 percent of IPO proceeds each year on average since 2001, according to the data. (Source: Bloomberg, by Whitney Kisling - Feb 2, 2012)

30 Nasdaq OMX
The Nasdaq is not a physical entity. The Nasdaq might be known for its fancy Market Site Tower and broadcast studio in Times Square, but very little is done there. The Nasdaq is an overthe-counter (OTC) market and it relies on market makers rather than specialists to facilitate trading and liquidity in stocks. For each stock, there is at least one market maker. Rather than being an auction market, the Nasdaq is a communications network between thousands of computers. Instead of brokers calling out orders, market makers place their names on a list of buyers and sellers, which is then distributed by the Nasdaq in a split second to thousands of other computers. If Investor wish to buy a stock that trades on the Nasdaq, Investor’s broker will either call up a market maker with the information of Investor’s trade or enter investor order into a Nasdaq-sponsored online execution system. (Source:, 2009)


Items NYSE-EURONEXT +AMEX 15.2 (US$ in trillions.)* Market Capital 3,261+519 No. of Listing = 3,780 company* Physical Location: Location Trades occur in a physical place, on the trading floor in New York City. the way securities on The NYSE is an auction market the exchanges NYSE are perceived to be Perception and Cost more well established. Its listings include many of the blue chip firms and industrials that were around before our parents, and its stocks are considered to be more stable and established. NASDAQ OMX 5.0 (US$ in trillions.)* 2,774 company* Telecommunications network

The Nasdaq is a dealer's market The Nasdaq is typically known as a high-tech market, attracting many of the firms dealing with the internet or electronics. Accordingly, the stocks on this exchange are considered to be more volatile and growth oriented.

Entry Fees

Well Know listed company

The entry fee a company can Nasdaq, $50,000-$75,000 expect to pay on the NYSE is Nasdaq yearly fees around up to $250,000 $27,500. Yearly listing fees are also a big factor: on the NYSE, they based on the number of shares of a listed security, and are capped around $38,000 to $500,000. Exxon, Bank of America, Apple, Microsoft, Google, GE, Wal-Mart, Chevron, Yahoo, Dell, Amazon, P&G, Johnson&Johnson Cisco, Ebay

* Only in USA (Source:, 2009)

Top 10 Largest Market Capital Listed in NYSE-EURONEXT
Symbol XOM BAC^I IBM GE WMT CVX T PG WFC JNJ Name Exxon Mobil Corporation Bank of America Corporation International Business Machines Corporation General Electric Company Wal-Mart Stores, Inc. Chevron Corporation AT&T Inc. Procter & Gamble Company (The) Wells Fargo & Company Johnson & Johnson MarketCap US$ billions. 404.7 250.0 240.8 211.7 209.6 209.3 185.9 185.1 181.9 180.0

Source: Nasda OMX, , 2012

Top 10 Largest Market Capital Listed in NASDAQ OMX
Symbol Name AAPL Apple Inc. MSFT Microsoft Corporation GOOG Google Inc. ORCL Oracle Corporation VOD Vodafone Group Plc INTC Intel Corporation QCOM QUALCOMM Incorporated CSCO Cisco Systems, Inc. AMZN, Inc. CMCSA Comcast Corporation Source: Nasdaq OMX, 2012 Market Cap. US$ Billion 575.8 270.1 169.2 147.6 143.3 138.9 115.2 113.5 91.5 62.7

33 4.9 Which Market is Facebook plan to listing? paid $199,000 or less annually, Nasdaq OMX’s initial listing fee for IPOs ranges from $35,000 to $99,500 for its highest tier of companies, and its annual fee is $35,000 to $99,500. (Source: Bloomberg, 2012)

Facebook did not disclose in which exchange it plans to list. NYSE Euronext won 56 percent of U.S. initial offerings in 2011 and has claimed more than half every year since 2008, according to Ipreo Holdings LLC, which provides markets data and analytics. The company accounted for 74 percent of IPO proceeds each year on average since 2001. NYSE Euronext charges more for companies to list, with an initial fee of $125,000 to $250,000 and annual payments from $38,000 to $500,000. About 80 percent of NYSE companies


4.10 Facebook IPOs Advantage and Opportunities
Facebook aim to raising US$ 5 billions, some business analyses (Bloomberg, The economist) expected Facebook IPOs may raise to US$ 10 billions. That is a large funds will use for Facebook’ business expanding. Facebook IPO will set the stage for a battle between the titans of tech industry. It has been clear for some time that Google is squarely in Facebook’s sights – and that Facebook builds its social app platform and takes it into mobile device, it will pose more of competitive threat to Apple and Amazon too. Perhaps Facebook will be temped to use some of the cash from IPO to strike a partnership with a hardware company to produce a “Facebook Phone” with a Facebookcreated social operation system. (Source: The Economist, February, 2012)

The world most interested Internet Company in history name “Facebook, Inc” .it was found by the most important person name, “Mark Zuckerberg” with his friends and official launch February 4th. 2004. Facebook has making a great advantage for internet user around the world to connecting with people their interested through “social network website:” At the end of December 2011, Facebook has more than 3,200 employees, and US$ 3.71 billion in revenues, US$ 1 billion in net profit. The most of its revenues come from display advertising around 85% and 15% from payment and other fees, moreover facebook made more interested static as follow; 845 Million Monthly active users 2.7 Billion Likes & Comments per day average during the three months ended December 31, 2011 250 Million Photos uploaded per day 100 Billion Friendships 483 Million daily active users (DAUs) on average in December 2011,an increase of 48 % as compared to 327 million DAUs in December 2010 Facebook had more than 425 million MAUs who used Facebook mobile products.

Facebook IPOs Stage
Facebook, first filed a form S-1 to U.S. SEC on February 1st, 2012 then Facebook got feed back from SEC, and the last edition of from S-1 is amended no. 2 that filed on March 7, 2012., Now Facebook waiting for SEC feed back. Facebook aim to raising US$ 5 billion IPOs, some business analyze expected Facebook IPOs may raise fund to US$ 10 billion. Expected Facebook market capital between US$ 75 billion to US$ 100 billion Expected IPOs may trade in May, 2012

Investment Bank of Facebook IPOs
Morgan Stanley & Co. LLC is acting as representative, have severally agreed to purchase, and Facebook and the selling stockholders have agreed to sell to them. and other Investment bank serving as joint book-runners. Goldman, Sachs & Co., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Later, facebook add new big 5 investment bank as underwriters are; Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, RBC Capital Markets LLC and Wells Fargo Securities LLC, and add another 20 smaller firms which will help sell the stock. The bridge loan was led by J.P. Morgan and Morgan Stanley.


Facebook IPOs Counsel Company
Simpson Thacher & Bartlett LLP is acting as counsel to the underwriters.

Facebook IPOs Financial Auditor
Ernst & Young LLP is acting as financial auditor.

Listing Exchange
Facebook did not disclose in which exchange it plans to list.

After Listing
When Facebook listed in exchange, CEO Mark Zuckerberg will hold more than onefourth of the shares in the company. With a voting power of almost 60% of the stock, Zuckerberg will continue to remain at the helm of company affairs. That's a greater measure of control than Bill Gates had at Microsoft when it went public in 1986 (with 49%), and far greater than what the co-founders of Google had in 2004 (16% each).

Reference 1. Abor, Joshua. 2012. “The Role of Investment Banking in Raising Capital in Ghana.” 2. Baran, Daya. “Who Is Making Millions In Facebook IPO.” 6 February 2012. 12 Mar.2012 3. Big Four (audit firms). 12 March 2012 4. Boyle, Carolyn. “The NYSE IPO guide.” New York: Caxton Business & Legal, Inc., 2010 5. Facebook’s IPO: Numbers & Charts 2 March 2012. 6. Gustin, Sam. “Facebook With IPO, Facebook’s Valuation Could Reach $100 Billion.” 1 February 2012 7. Investment Banking market share. 28 February 2012 8. Investment Banking Scorecard. 22 March 2012. The wall Street Journal 9. Kisling, Whitney. “NYSE, Nasdaq Vie for Facebook IPO.” 2 Feb, 2012. 10. Wikipedia. “Facebook.” Wikipedia. 1 March 2012. 11. The Economist. “A fistfuls of dollars.” The Economist, 4-10 February 2012: P9, P.20-22 12. The IPA 2011 top 100 Accounting Firms. Inside Public Accounting, August 2011, Volume 25, Number 8 . 13. The NYSE And Nasdaq: How They Work. 18 December 2009

14. U.S. SEC. “Facebook.” U.S. SEC form S-1 Amended no.2, 7 March. 2012. 2 March 2012. 15. Company List 2012. Nasdaq

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