Home : Nasdaq
Stock Code : FB
Website : investor.fb.com
Was the facebook IPO a success? Discuss
The question of success shall be answered in a point of view format. There are three major points of views, (a) FB as a going concern, (b) pre-IPO investors, and (3) IPO investors.
FB raised a net proceed of $6.8B in cash after expenses through selling of shares priced at $38 each. This price puts FB share on the upper level of the pre-IPO grey price of $34 to $38 (II).
FB is highly successful in raising capital in the primary market. It managed to command the highest of recommended price by underwriters and book runners, brushed aside scepticisms by fundamental analysts including its challenges, unusually high valuation (KK), amongst others. FB managed to rally investor to buy into the FB story.
The $6.8B of equity base presented as cash in the balance sheet would enable to company to make big acquisitions, capital investment and operating expansion through cash or raising more debt in the market. It has through the controversy become one of the most notorious IPOs in history. It definitely raised the public’s awareness of the company.
However, FB made decision for sharebuy back. This is a concern as it appears that FB doesn’t have a better way of utilizing the cash for business expansion? What about develop better technologies and social network service to connect people, connect businesses and connect governments? The jury is still open but its negative to the startup.
|(Margin)||3/4FY2012||2011||(Capital Turnover)||3/4FY2012||2011||(Gearing/Financial Leverage)||3/4FY2012||2011|
|Profit after tax||-0.003||0.271||Revenue||0.218||0.408||T Assets||1.132||1.292|
|Revenue||T Assets||T shareholder’s equity|
The CEO’s decision to manage share price instead of the business has shown in the negative returns ratio for the cumulative 3/4 financial year. It is not too bright.
Pre-IPO investors cashed out
According to the most recent financial statements, FB had raised a net proceed of $6.8B in cash through a share sale. The total converted share base (after conversion of class A, class B and other preferred etc) of FB is about 2.14 billion (NN). If we estimate based on IPO price of $38, the number of shares involved in the sale should be 180 million, accountable to raising cash of $6.8B.
There are more than a trillion shares in the market. The common investor who invested in FB is facing an uphill task in push share price up, no less strenous than the US government’s AIG recapitalizing exercise on common shareholders.
By all means FB IPO is a success! The risk was well rewarded for pre-IPO investors.
This question should be tackled in 2 approaches. First is financial reward, second is the FB as a company.
Looking at the financial rewards. The market price of FB is $21.94 (28 Oct 2012), it is almost halfway from IPO price. Those who had held on to the shares from IPO would have paid a high price, considering that they could have bought it at a discount now.
That should not be a problem for long term investors, as long as the company is viable, it could even stage a price turnaround in a perhaps the Greater Fool theory speculated by the writer Rolfe Winkler (GG).
However, evidence to date does not seem to suggest that there could be much greater fool as the average market intelligent participant. (MM) data suggested that most of internet companies that are somewhat related to social media seemed to have made it past the IPO price, with the exception of Linkedln.
It will be more disheartening if compare the performance of FB with S&P index of stocks, when FB debut it was slightly above 1300 with the value hovering around 1411. The average investor looking for profit would have been shamed. However, it does not mean that all is lost.
FB is a stock while the S&P index of stock is a portfolio of stocks. Single stock will outperform and will under perform predicts the portfolio theory.
Interestingly, those who are brave shorted the stock through selling call options or buying put options would be rewarded by their foresight (DD). Sellers of call options would get to keep their options premiums. Buyer of put options would get to exercise the options.
The other group of it would be borrowing shares for shorting, these traders would be vastly rewarded financially too. Lastly, there are those who dared to make intraday naked short selling and square off their position before the end of the trading day!
All these are information on the hindsight. There will be many who are wiped out by the volatility of the FB shares. If those that made money from this episode, FB IPO is a success, those who lose, it is arguable that FB IPO is a failure.
The second class of IPO investors would be the non too short term investors. They would be still holding the IPO shares. They are lucky IPO investors who managed to take a trophy of the world’s greatest IPO should be proud that they are the first amongst the world to be owners of the world most unique public listed company.
FB had digitized the world of social networking. It had somewhat replaced handshakes, hugs and kisses with “like” button. It allows photo sharing hassle free. These famous features pandered to the human desires.
The biggest question here becomes, it is worth losing the money to be part of the historic moment? Strictly financially, it is hardly worth the money; otherwise, I would agree to the writer, David Weidner (HH), that after considering the overwhelming reasons of not to buy into Facebook, buy FB anyway.
List of Articles
DD – TWSJ “Morgan Stanley, Others Make Profit of $100 Million Stabilizing Facebook”, 24 May 2012
GG – TWSJ “Saving Face in Hairy IPO”, 19 May 2012
HH – TWSJ “Hear Are 10 Reasons Not to Buy Facebook Before You Buy It Anyway”, 18 May 2012
II – TWSJ “Facebook Raises IPO Price Range to $34 to $38”, 15 May 2012
KK – TWSJ “Sizing Up Facebook”, 12 May 2012
Feel free to write back to me about your opinions of Facebook.