
After eight years and securing over 845 million users, Facebook Inc. filed for an initial public offering (IPO) Wednesday. Business experts estimate the company will be valued somewhere between $75 billion and $100 billion. The company stands to gain up to $10 billion from investors at the IPO.
These figures would make it the record holder for the largest U.S. Internet IPO, beating Google’s public offering in 2004.
Even though the IPO is still months away, the company’s decision to go public has raised questions regarding the lifespan of the company, its ability to retain users and continue to pull in revenue.
Forbes magazine has high hopes and says buy, but The Wall Street Journal advises caution as it is unknown if Facebook will be able to thrive as a public, global business, balancing its subscriber satisfaction while maintaining its profits and stock health.
Hani Abbas, treasurer of the Accounting Society at Cal State Fullerton, 29, thinks the IPO will reveal a lot about the company’s intentions and financial stability.
“One good thing about Facebook going public is that we’re going to actually see what things Facebook is concerned about. In the financial statements, they’re going to have to say, ‘This (is) where we are, this (is) what we’re looking forward to and this is what we’re concerned about,’” said Abbas.
For Facebook to have valuable stock, the company needs to continue to earn revenue and grow as a company. Last year, the company made $3.7 billion in revenue, an 88 percent increase from the previous year.
Currently, Facebook makes most of its money through ad sales, but a growing moneymaker is slowly emerging through the site’s games. Stacy Johnson, certified personal accountant and producer of Money Talks News, acknowledges that Facebook is an extremely valuable company, but also recognizes that the IPO is bringing a lot of hype. This build-up is likely to inflate the price of shares.
Amy Cattelino, 20, vice president of activities for the Finance Association at CSUF, predicts the stock price will increase in the first few months. “The price is going to fluctuate so much. The price will rise within the first week. I believe we’re going to see a really big jump in the original price.”
With some of its users hungry to get their hands on some shares, they may not get their wish at the IPO. In keeping with Wall Street’s propriety, the company’s IPO is really only open to heavyweight investors. Small investors will have to wait until shares debut on the open market. However, the days and weeks following the IPO could see shareholders selling their shares off.
Investors interested in the short-term benefits of the stock are only interested in the supply and demand of the stock itself.
Leszek Radzyminski, 20, president of the Accounting Society at CSUF, feels the investors involved in the IPO can potentially make a decent profit.
“The people who can get in on the IPO are going to make money. If they get out within three weeks to a couple months, they might make quite a bit of money,” said Radzyminski.
For long-term investors, there are different factors that come into play. Growth rates and price-earnings ratios must be considered. The company’s current and future earnings determine the value of the stock, and the company’s share prices cannot be determined until the IPO conversion has taken place.
Jeff Parsons, certified financial planner and professor of finance at Cal State Fullerton sees a bright future for Facebook and its future shareholders.
“I think the stock price will be a little overvalued. There might be some ups and downs but it could be a good long term investment,” said Parsons.
Facebook founder and chief executive Mark Zuckerberg assures his website’s members that the new change in the company will not hurt the website or its services. Zuckerberg promises the company will still focus on building better products, not stock value. The company only plans to sell 10 percent of its shares, so Zuckerberg and his team will remain in control of the company. Zuckerberg asserts that the company was not founded with the intention of making money.
“We don’t build services to make money; we make money to build better services,” said Zuckerburg.
There are many differing opinions and predictions about Facebook’s decision to go public, and what the future has in store for the company and its shareholders. Only time will tell what is in store for the social network’s stocks.
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