Questions about Facebook's IPO

Facebook is going to raise $5B. However, all the aspiring investors will pay a steep excess to the initial share price. So people would be MORE THAN HAPPY to pay twice the initial share price. So why can't
Facebook profit on this?
1. Instead of issuing $50/shares and 100,000,000 ($5B in market cap), why can't they issue only 50,000,000 @ $100/shares, and thus sell LESS OF THE COMPANY FOR the same amount of money? This would benefit Mark Zuckerberg twice as much.
If you were selling 50% of your fantastically successful business. Wouldn't you sell it at a steep premium? Say 10X annual revenues, since your goal is to maximize earnings. An auctioneer or a seller who doesn't sell a business for what it's worth has failed, so I don't see why the I-Bankers would sell it so cheaply knowing that this stock will double in price in 10 days.
The only downside is to investors who purchase the richly-priced shares. Their ROR would be 10% over 10 years, and not 17.9% ROR.
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2.7182818284590... wrote:

They will, to the tune of $5B or more.

They arent selling less of the company by having half as many shares with twice the face value.

Nope.
He isnt doing that.

He is doing just that.

He's selling it for a hell of a lot more than that.

$5B isnt 'so cheaply', its actually more than any other IPO has EVER raised.

Bet it doesnt.

Specially when the stock lists at lower than what they paid for it.

Thats just plain wrong.
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I appreciate your time, once again, sir, You've always been very knowledgeable and a wealth of info to me. OK, Rod Speed, this is my point:
You own a gas station called "Speedy's Gas Station, LLC" (SGS). The real estate, assets, and everything earns $100,000 NET every year without fail. Currently, the discount rate for something that yields a consistent earning should be about 5%, let's say. This discount rate is less than for a stock and more for a governmental security. So this SGS is worth $2,000,000.
One day, you decide to sell only 10% of this company. Now, you and I know that this 10% stake in the company is worth ~$200,000 +/- $20,000 ----> $180K-$220K. That's all. But people are hyper-exuberant. They are ready to pay $400,000K for this stake in SGS. Now, you're an honest and generous man. You're content with $200,000.
So when you decide to sell 10% for your $200,000, a whole bunch of different investors pay exactly this much total. In a few days, this shares are appraised at $400,000.
But couldn't you have sold your 10% stake at your company for $400,000 to begin with? Let the people pay more if they choose to.
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2.7182818284590... wrote

Operations like google and facebook are nothing like a gas station.

That isnt the basis for the facebook IPO, their earnings.
Its essentially a bet on what the stock price will do, just like it was with google.

While that works for a gas station, it doesnt for an operation like google and facebook at the IPO stage.

They arent with gas stations.

No they arent.

That doesnt happen with a gas station.

Fraid not.

And that is precisely what is happening with the facebook IPO.
It turned out that with the google IPO, they could have flogged the stock for a hell of a lot more than they did flog it for, but its always very difficult to decide what you can ask IPO price wise and not see the price of the stock sag when its first listed and so punish those who chose to buy the stock in the IPO, particularly with something like google and facebook which are both outstandingly more successful in the market than the alternatives and when there is nothing much to compare them with IPO wise.
The prospects for google were very different than facebook and its much easier for a comptitor to move the users of google away to some other operation if it does a better job than it is with something like facebook or ebay which see massive inertia with the current users for various reasons.
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Oh Lord, where do I begin...
Look, it's nice of you to try to help the guys running the Facebook IPO, but I guarantee you they don't need your help. Although they're a little rusty since the dot-com bust over 10 years ago, when they took hundreds of companies public that failed just months later, they still remember all the tricks to extract as much money from American sucke--er, investors as possible.
Number one, they ARE trying to sell as little of the company as possible for as much money as possible. They do this with good old-fashioned promotion and PR, so the sucke--er, investors don't bother to really look at what they are actually buying and at what cost.
I remember working for a company that went public and getting regular e-mail updates from the company president as he worked his way around the country on a classic pre-IPO "road-show". The investment bankers who underwrote the IPO set these things up with big-money sucke--er investors to dazzle them with giant growth prospects of their potential investment in the IPO. Note that Facebook is using the media to do free advertising for their IPO; every TV news show is covering it like it was actually news or sumpin. That's the underwriters feeding the news outlets "press releases" that are little more than pre-canned "news" stories that the newspapers and TV networks can air with little or no actual work on their part to create.
You seem to be confused about so much, but nothing more so than talking about Mark Zuckerberg as if he actually controlled this IPO or even the company. There are two groups of people controlling this, the venture capitalists, typically for a "Silicon Valley" company the guys who have their offices on El Camino Real around Page Mill Road in Palo Alto, and the investment banker underwriters of the IPO. The goal of all the venture capitalists is to gain controlling interest of start-ups by making relatively large investments in "promising" companies in their early days. They, more than Zuckerberg, "own" the company and this is THEIR big pay-day (not that he won't profit tremendously), THEY'RE the ones selling out a good portion of their stake in the company. The IPO underwriters stand to rake in a nice cut of the action for doing nothing more than getting the sucke--er, investors in the tent to be fleeced.
Back in the "good old days" for these guys, they would sell less than 5% of the company, and the sucke..er, investors would be so frenzied to get in on the "action" they'd bid up the IPO price to insane levels, like 100x sales or more, for companies that hardly had any sales and even less profits. The LESS of the company they sold, the HIGHER price they could get for it, because it became a rare commodity in that oldest game of supply and demand. They even had a name for it, they called it the "keyhole effect", because they didn't open the door for the public to invest in the company, they just let them have whatever small part of the company they could "suck out the keyhole" (this is an actual quote from a venture capitalist).
--
William Ernest Reid (man, that Facebook must
be sumpin, "Dumb Mikey Lubow" Tenenbaum is
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Thank you Bill Reid. I'm going to comment below to your post.

This bit is confusing here above as well. You see, Mark Zuckerberg is already worth $20B+. How do you figure that he's going to get any richer? At the most, Z will be richer by 28%*$5B = $1.4B. Where am I getting these numbers? Z owns 28% of Facebook, and they will raise $5B. Therefore, he will make $1.4B from this transaction. But he's already worth more than $20B. So I'm not understanding what you're saying.
I believe that they were fantastically wealthy BEFORE and not much richer AFTER the IPO. You believe that they weren't that rich BEFORE the IPO, but only rich AFTER the IPO.
Finally, with this IPO, how was it determined what percentage of Facebook is worth $5B?
Well if their goal is to fleece investors and maximize profits, than they'd better off sell *1%* for $5B and not 10% for $5B. Think about it. Suppose I were an investor of a company. I'd rather sell 1% of my holding for $100,000 than sell 10% of my holding for $100,000.

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Nah, I heard $17billion, but it's all imaginary money in any event...

Because he will have a much bigger secondary market to sell his shares and potentially turn his imaginary money into REAL money; I heard the IPO will take him from $17billion to $28billion, and that's the difference between the number of people (companies) who have $17billion to buy him out and the entire American (and global) investing public, who actually have much more in aggregate than $28billion...

Whaaa? This looks like "ShortPee/Tenenbaum" math...

I don't know, but I bet it doesn't smell good...

No, the company will get the proceeds of the IPO, and the venture capitalists. In theory, he gets nothing except they might let him continue to work there and draw a salary/bonuses a while longer...

This is like saying that you were worth $1million because your house was worth $1million...BEFORE the real-estate crash. Hell, for that matter, I said that I have worked for companies that had IPOs, many people in those companies were worth $millions in stock options, but then managed to wind up getting nothing and actually owing the Federal government hundreds of $thousands of dollars in unpaid taxes because of the tech crash and their stupid greed...
Just because you're "worth" something today doesn't mean you'll ever get the money. Get it?

Do you think that's because it's simple, logical, and based on reality?

No, that's not what I said, but that is how the media is reporting it in their reprints of Facebook press releases. They also have "reported" that a grafitti artist who painted a mural at Facebook headquarters will make $200million on the IPO because he was paid in Facebook stock. Of course, only the terminally stupid would believe such a thing, but there it is, try crunching THAT number...

What percentage? It's whatever percentage of the company they are selling in the IPO. Essentially the IPO process tries to find what sucke--er, investors are willing to pay for the company. Then they "price" the offering at that price for that percentage of the company. I think they are selling about 10% of the company, but I'm not sure because I don't really care...

Well, sure, and I could sell 10% of my navel lint for $1trillion if only somebody would buy it for that price. They are now in the process of finding out how MUCH they can get for 10% of the company (or whatever). If they could get $50billion they'd take that, but there aren't THAT many sucke--er, investors...

I don't have to think about it, I know exactly what it is and how it works. You obviously don't, and it seems like a lot of your misinformation comes directly from those very same press releases they use to bamboozle so many sucke--er, investors...

"bob wald" would like to sell his GCOG stock for $100trillion a share but that ain't gonna happen and if you don't understand simple supply and demand (and fear and greed) which drive the financial markets it's a lost cause to understand IPOs where the very self-same forces are manipulated to bring in as much money as POSSIBLE to the start-up investors in a company (POSSIBLE, see that word? POSSIBLE, see it again, let it sink in, don't forget it)...
--
William Ernest Reid (I'm PO'd I didn't paint graffiti all
over Facebook)
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Hello once again sir.
I'm just now figuring out something regarding that graffiti artist. My working guess is this: He was given call options on Facebook stock. So perhaps his $200M is the nominal value of these call options. What's more important is the strike price of them. If the strike price were $50, then he'd have the option to by $200M worth of stocks for $200M, and this is a net wash (no profit will be made and no money will be lost).
I appreciate your time to educate me but I'm not that bright.
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That wouldn't be my "working guess", I already said my "working guess" is the whole story is bushwa.
However, if there is any truth to it, I took it to mean they actually just directly gave him "stock", NOT stock options. I myself have just been given "stock" in companies I've worked for before they "went public" (and in some cases they never did so the "stock" really wasn't worth much but I did sell it back to them for some money).
In other cases I was given what are called "Incentive Stock Options" (ISO) which is probably what you are thinking of. These are NOT the same as the traded call/put options, they are the subject of special laws and a contract between you and the company regarding their vesting and exercise and are not publically traded.
But who knows? I do know (because I've seen) secretaries become multi-$millionaires after a hot IPO when they exercised the ISO options they got, so why not a graffiti artist?

Well, yeah, that's how it works, when you exercise your ISO options you have to pony up the dough to pay the strike price. Companies I've worked for had special arrangements with brokers who would front the money for a nominal fee, exercise the options and get the stock, and then turn around and sell however much stock it took to cover the cost of the options and/or how much money the employee wanted to take out of the exercise that day, and leave the rest of the stock in a brand spanking-new brokerage account. So the employee just had to walk down to personnel/accounting and fill out a form stating they wanted to exercise a certain number of options and then they got a new brokerage account with money and/or stock in it. (This irritated me because I already had a brokerage account and plenty of money in my checking account for my option exercise, so I had to fight with them to just exercise my options and have the stock transferred to my broker where I could sell it.)
And yeah, if the strike (exercise) price is at or below the current stock price it doesn't make any sense to exercise the options (duh). I've worked for companies where my ISO exercise price (which is generally set at the price around the date of your hire) was like $10/share and three months later the stock was selling for like $3 so needless to say (unless you're a Tenenbaum) that ISO grant was worthless (at another company, I was profitable on my ISO grant, but the great majority of the employees weren't, because they were hired after me and the stock went way down after having gone up dramatically in the few months after I was hired, so management kept lowering the strike price of everybody's grants who weren't profitable, thus completely eliminating the "incentive" part of the ISO grants).

Oh, don't put yourself down, you're posting in misc.invest.stocks, so you're about 100 times smarter than the average poster here, and probably 40 years younger to boot...
--
William Ernest Reid (if you don't believe me, look up "Dumb
Mikey Lubow" Tenenbaum's idiotic post on option pricing from
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2.7182818284590... wrote

That mangles the story completely. The bulk of his wealth wont be the shares he flogs in the IPO, its those he retains and what happens to the price of those after the IPO like with Gates and Brin.

Good question.

Thats not how he benefits from the IPO.

Fraid not.

Where are you getting that number from ?

Only in the sense that the IPO was going to happen sometime.

That mangles the real story.

And thats true in the technical sense.

It isnt 'determined', they make a crude guess at what they can raise in the IPO.
That can be WAY out. It was with google.

That wont happen if the stock is worth more after the IPO than they pay for the stock.

It has no real effect on profits. Its a way of raising capital.

Not even possible.

That assumes you can get the same amount for both parcels. Of course you cant.
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Oh criminy, just when I thought I had set the puppy straight, "Pod Creed" has to come along and muddy up the waters again...

What the hell are you doing quoting my post when you only actually respond to "95009582.87637326"? Why not just directly respond to his original post?

From the media, the same place you get all your misinformation from...

This is about the closest you get to a correct statement in your post...

From the media, the same place you get all your misinformation...

The media, just like where you get all your misinformation...

No, you don't know what you're talking about either. The IPO doesn't change the fact that he held a sizable percentage of a company with 800 million idiotic losers as "customers". THAT is "worth" a lot of money, but the trick would be who would have enough money to buy him out and the other investors and get a controlling interest...it's not unreasonable to ascribe a "worth" to a holding in a company, but in the case of most pre-IPO companies, we don't know exactly how much revenues and profits they are making, but if a private investor wanted that information for a bona fide offer to buy the company out and the original investors were amenable to being bought out that way, the information would be supplied, and the "worth" would be more precisely determined...Zuckerberg is not "worthless" UNTIL the IPO, but he probably will be "worth" MORE after it...

No it's not true in any sense, what a pig ignorant thing to say...

After I went to the trouble to outline the process, you turn around and call it a "crude guess"...what a pig ignorant thing to do...

What an idiot. Google(TM) used a completely different process for their IPO than most companies. The basic idea was the same, but the result was arguably different...

Sure, just like I've "fleeced" everybody who bought stock from me and it went down, SUCKERS!!!! Sheesh...
It's a "sell job" whether the stock goes up or down after the IPO...you could argue that Google(TM) "left a lot of money on the table" by not going through the typical road-show "sell job", but then again there have been MUCH more dramatic runnups right after IPO for companies that used the "traditional" IPO process...

Uh, yeah, that's correct, and it's basic accounting, unless you're Warren Buffet...

It's POSSIBLE, just not PROBABLE these days, and it won't happen here...but back in the tech craze daze they were getting down to around 2% of the company for RIDICULOUS valuations...

At the peak of the tech craze, you probably COULD have sold 1% of Facebook for like $20billion...
--
William Ernest Reid (and just to let everybody know, my navel lint
is STILL available for $100trillion)
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Bill Reid wrote

Everyone can see for themselves that you clearly did.

I told you. Read it.

Wrong, as always.

Been here a hell of a lot longer than you have, thanks.
And its usenet.

Everyone can see for themselves that you are lying, again.

Wota stunning line in rational argument you have there.

Because you mangle the real story considerably.

Wrong, as always.

Wota stunning line in rational argument you have there.

Wota stunning line in rational argument you have there.

Corse it is.

You get no say what so ever on that or anything else at all, ever.

Wota stunning line in rational argument you have there.

Wota stunning line in rational argument you have there.

Wota stunning line in rational argument you have there.
And when this juvenile shit is the best you can manage, here goes the chain on the rest of your juvenile shit.
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Well, that settles that...

Really, how long?

Just trying to show some respect for the forum that gives people like you a voice on this planet...

Ah, I'm just messin' widya, cuz you're funny when you're mad because you get the same crap thrown back at you that you dish out...you're not the most clueless peep on Usenet, but it's best that you don't operate heavy equipment in real life...
--
William Ernest Reid (thinking about changing my
name to "Flash Bat" to sound as cool as "Rod Speed")
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