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Ipo Facebook

In: Business and Management

Submitted By elcapitn
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Facebook announced its $5 billion IPO late Wednesday afternoon. But what is all the hype about? What is an IPO, how does it work, and will a publicly traded Facebook affect how we use the social network on a daily basis? Here's a quick guide.


When a privately owned company makes an Initial Public Offering, it means they're moving to be publicly traded on the stock market for the first time. That means that anyone can buy stock in the company and own a portion of it.

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Going public can help a company raise significant capital if a lot of people want to buy its stock. It also means that the company has to publicly disclose details about its finances, like its earnings, that it previously kept private.


An investment bank determines how much money the company can expect to make on the stock market based on a number of factors, from the health of the economy to how popular the company's product is expected to be in the future. The initial valuation is always a bit of a gamble, since the stock has never been traded publicly before, and analysts can't look at past behavior to figure out how it should be priced.

Morgan Stanley is expected to spearhead Facebook's IPO filing, with Goldman Sachs playing a supporting role, the Wall Street Journal reported Saturday. Facebook's IPO has been pegged at $5 billion. The company itself being valued between $75 billion and $100 billion, unnamed sources familiar with the deal told the Journal.

The IPO sets a record among technology companies. Google currently holds the record for the largest tech IPO at $1.6 billion, according to the Washington Post.


Facebook is releasing previously private financial information, so we'll be able to see how much the company is actually making, how much the executives earn, and what its biggest sources of revenue are, among other things.

Facebook CEO Mark Zuckerberg is known for wanting to maintain creative control over his creations -- he's rejected lucrative offers from companies who wanted to acquire Facebook, including when Microsoft tried to buy it for more than $15 billion in 2007.

Now everyday investors will own part of the company, and he'll be accountable to them.

Once a company goes public, it has to worry about turning a profit and satisfying investors, lest they start dumping its stock.


There probably won't be any noticeable changes in the short term. The Guardian predicts that with greater public pressure to be profitable, Facebook will likely get more aggressive about targeted advertising, and may try to find new ways to make money off of private user data.


Small-fry investors don’t have much of a shot. The investment bank underwriting the deal typically gets to dole out shares at the IPO price to favored clients. In a hot IPO, the majority of those are institutional clients, and any individual investors who get in are usually frequent traders with big accounts, according to Scott Sweet, senior managing partner at IPO Boutique.

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