Facebook Stock Going Public?

zmaragdus writes "Facebook Inc. converted its existing stock holdings into different classes of stocks (Class A and Class B) designed to give certain shareholders more power than others. This has been typically done in an IPO of a company's stock to give important people (company founders, for instance) more clout in the actions of the company when stock is first offered to the public. While Facebook maintains that it does not plan to offer stock publicly in the near future, this restructuring is one of the critical steps in doing so."

Comments

hmm

[TornCityVenz]

I like this.

Re:hmm

[Anonymous Coward]

I like this.

I enjoy this for another reason.

This reminds me of the old bubble, where companies who exist merely on advertising go public. Lots of people get hyped about it; eventually everyone realizes that it's a waste of money and the company goes under.

Hopefully history repeats itself, and like all of the dot-com bubble companies, facebook will be no more.

Re:hmm

[Psaakyrn]

Google also exists merely on advertising, so it isn't always true.

Re:hmm

[Anonymous Coward]

After scoffing when Google IPO'd at $80... and then having to watch as the stock soared to over $500... I might have to get in on this one.

Re:hmm

[Culture20]

I don't. Once it's a public company, it has a fiduciary responsibility to bend its users over to try and get as much money for its shareholders as it can.

Re:hmm

[Darkness404]

You have to realize there are a -lot- of companies that exist mostly on advertising (Google anyone?) and are doing great. The reason why Facebook shouldn't offer public stock is mostly because it can't -do- much. Yeah, it has applications (and this alone will help Facebook make at least enough to break even or make a small profit) but who is going to pay for a crappy web application? A few people might buy some "limited edition" items in Farmville, but who is going to pay for access to Farmville (and that is about the only way that Facebook itself could get a cut of the funds) itself? Facebook has a lot of data, but selling that data would run afoul of some privacy laws and give Facebook lots of bad press. Facebook users have also all united against paying for it, the fact that it is web based means that if they charged for Facebook Mobile a third-party application could arise. Facebook can improve a lot, it is notoriously unreliable, chat only works half the time, and other features randomly break. But as for branching out in multiple areas like Google has done, I don't think Facebook can do that.

Re:hmm

[caffeinemessiah]

Once it's a public company, it has a fiduciary responsibility to bend its users over to try and get as much money for its shareholders as it can.

Here's an interesting thing they could think of. Ask users to pay a small monthly fee to see who views their profiles. Sure, it'll drive a lot of people off the site, but Facebook is so ingrained in the lives of a certain demographic that it would feed of insecurities and fears and certainly generate a decent monthly revenue. The same insecurities and fears would ensure that a user pool never disappears, since getting off Facebook would deprive you of OMG! why is Sheila dressed like a tramp!??

Re:hmm

[eln]

Facebook also has deep flaws, both in technology and management, that present big opportunities for a potential competitor. Facebook makes money now because its userbase has reached a critical mass, and its thought that since everyone uses it, no one will want to move off it. People thought the same thing about MySpace just a few years ago, and now it's widely regarded as the ghetto of the Internet, and people are leaving it in droves. To go back further, Yahoo was the darling of the tech economy before Google showed up.

Make no mistake about it, Facebook is very vulnerable. All it needs is someone with the brains and business model to exploit those vulnerabilities, and it's finished. Facebook may be a smart short-term play, but holding their stock for the long term would be a disaster.

Re:hmm

[nacturation]

Facebook could easily develop a microtransaction API. $10.00 = 1000 credits. Buying something in an app might cost 5 credits (aka 5 cents), which is impossible to bill for via credit card due to all the fees. So Facebook can start keeping a credit bank, and apps could debit your account based on purchases you authorize. Facebook takes a 20% cut.

Re:hmm

[adavies42]

http://www.rose-hulman.edu/~christ/vfecon_asee2008.pdf

christ goes to rose-hulman? they didn't mention that back in '97 when i was there for a prospective student visit....

Re:hmm

[AmigaMMC]

Screwing users over is great for short-term revenue, but companies who are in it for the long haul value things like brand loyalty.

In this universe things work differently. Take eBay: it had huge brand loyalty and it has been pushing and pushing and people have been abandoning by the thousands. eBay last March actually created (because of a bug according to them, yeah right) a hundred thousand fake listings right in the middle of a user boycott to show the numbers were actually up instead of down. Their stock has been plummeting. Companies with public stock have stopped caring about their users/consumers long time ago. Maybe in your universe things are different, I wish I lived there ;)

Re:hmm

[Anonymous Coward]

Name any IT company that has been at the top of its field for longer that 10-15 years....

Then sit down and ask why the stockmarket uses 8-10 multiples of earnings to value IT companies.... I can't answer this one.

Then sit down and ask why would you buy into the IPO as a long term investor. Give it 5 years and people won't remember it.

Re:hmm

[darthflo]

...ask them for a fee to see whom of their friends viewed their profile.

Facebook isn't a true dating site, it's more of an extension of your real life social circle. Remember that cute chick your friend Greg was with at that concert where you randomly met? You two exchanged a few words, and you're pretty sure she smiled at you in an "interested" sort of way, but you were too shy/drunk/whatever to ask her for/write down her number. Luckily Greg has her as a friend, so you add her too. After she's accepted your friend request (she will, there's at least one mutual friend & she might've already met you); you of course want to know if she just Accepted and was done with that or actually checked out your profile. And that party photos where you're totally drunk, half passed out and look wicked cool. Well, guess what: You can. For 20 credits (1000 credits are $9.99) you get 24 hours of access to your profile's visitor log. Another 20 credits will even tell you whom looked at which one of your photos and videos.
You spent 40 cents for quite a bit more information than you'd get before buying a girl a drink in a bar. In five out of six cases, she might never even visit your profile, but you'll be checking for that occasional one out of six who will. At 20 cts per day and a moderate guess of 100 checks per year, they make $20 off of you directly, $50 off of you for advertising and $30 for some data mining (they have your credit card, know what ads you click, what profiles you look at and they've got pics of everything you do). That's $100, annually for, say, 5% of their 300m user base. $1.5bn ain't that bad.

Of course it's going public

[Nursie]

It's at the peak of it's popularity and thus the peak of it's perceived value.

They'll "go public", the owners (founders and other investors) will make out like bandits and then retards^H^H^H^H^H^H^Hfund managers will invest money in it from all of our pensions and savings. The stock will change hands many times as it is speculated upon repeatedly until such time as the next big thing comes along and it takes a slow plunge to worthlessness and irrelevancy.

In the meantime the founders are rolling in (our) cash.

Re:Of course it's going public

[FooAtWFU]

So (quit the 401(k) and roll it over into an IRA and) take responsibility for your own savings. Heck, short-sell if you want. Just remember that the market can remain irrational longer than you can necessarily remain solvent.

Re:Of course it's going public

[CarlDenny]

And pets.com, and webvan, ...

Re:Of course it's going public

[Darkness404]

I guarantee you that by the time the average 20-30 year old /.er reaches retirement age, Google, MS, Apple and most other "hot" companies will have either gone worthless, bankrupt, or otherwise not a good stock to have. Yeah, buying Google, MS and Apple when they went public made lots of people really rich really fast. But they are crap retirement stocks when compared to steadily rising stocks.

Re:Of course it's going public

[mysidia]

It's possible to sell short in an IRA, but it's difficult / expensive to get an arrangement that will allow you to. Buying PUT options might be a better choice for betting against a stock, for a trader, provided you understand the mathematics, the risks, and requirements involved (including such risks as your broker automatically exercising an option at expiration if you fail to deliver notice to leave it un-exercised, or they fail to receive your order in time).

Generally, most brokers won't just let you as an individual open a margin account using a new IRA with them as custodian. You will probably need what's referred to as a self-directed IRA through a custodian you have paid to allow you the option of a self-directed IRA.

You will need a custodian for the IRA who is willing to let you do it, and a broker that is willing to allow you to do it, and you open the margin account with a brokerage through that custodian.

The thing with margin accounts, is they allow you to borrow money, and generate debt-financed income.

This leads to two issues with regards to the tax and other rules effecting IRAs:

(a) The IRA is a separate entity, no assets outside that IRA can be used as collateral for the margin debt. So if you massively leverage your IRA account, and manage to get into serious debt... you walk away, the broker has no recourse against you. So the broker will not be interested in opening this margin account, except under strict rules, and if you have loads of cash to invest with them.

You can't sign any agreement that gives the broker recourse against you for your IRA's activities, or recourse/any use of your income/ assets outside the IRA.

Any use of resources outside the IRA, for IRA business is referred to as a prohibited transaction, the consequence is severe:

If the IRS finds out about any prohibited transaction, they'll disqualify the IRA for tax purposes: it gets treated as if you took a distribution of the entire value of the IRA at the beginning of the year the prohibited transaction occured, which incurs an early distribution penalty, and tax is now overdue on any income from the IRA.

So brokers and your custodian should be very cautious in this manner. Your broker stands to lose money, if the IRA (with potentially limited resources) gets into debt.

Also, there is this second item, about (b) Debt-financed income.

Your IRA itself has to pay UBIT (Unrelated Business Income Tax) on what is referred to as the UDFI (Unrelated debt-financed income), if it makes more than $1000 of such income, just like all other organizations exempted from tax under 501(a) and 529(a) (Form 990-T). IRS Publication 598

Your custodian has to file the 990-T and pay the tax, if it is due. If there is not enough cash in your account to cover the tax, then your custodian must liquidate other assets in it as needed to pay the tax.

Not a "critical" step

[mattack2]

The summary is wrong in calling this a "critical" step. It is a voluntary step, for the founders (and whoever else gets the higher class stock) to have more control over the company. But it's not mandatory (which I would infer by it being a "critical" step).

Who needs facebook

[zlel]

Who needs facebook when there's slashdot?

Re:Who needs facebook

[MichaelSmith]

I need facebook so my wife, sister, mother, etc don't inhabit /.

Re:Who needs facebook

[Rick and Roll]

People who want to get laid?

Re:It would be only fitting ;)

[mdwh2]

Yeah they should come over to Slashdot, it's the place to be if you want a great social life. Everyone on here are your real life friends, honest, unlike Facebook where it's all imaginary.

Re:An eIPO often seems like

[greensoap]

I am not a fan of Facebook, but lets think about what you said. What other site has risen to the level of popularity that Facebook has? And have those sites disappeared or lost popularity? We can start with Yahoo I suppose. Still huge, still around, and a completely different set of services offered. Geocities? eh, maybe but they were only popular with a segment of the internet population at a time when being on the internet was not cool. (Plus I never cared for Geocitie's pages) MySpace? While certainly their status has declined, hey are still kicking. Plus, Facebook actually pre-existed MySpace, then experienced a decline to MySpace, and has now far surpassed MySpace.

I would argue that AIM and ICQ are the closest analogies. Except that Facebook replaced them. Those services were designed to connect people and now Facebook does that (arguably better). Sure some people still use those services, but a lot of people just use Facebook for those things.

I guess my point is, please name the flash-in-the-pan popular sites you are referring to that have reached Facebook's level of pervasiveness in society? I only ask, because I have been on the net since '90 and cannot think of another and I am really trying. I am not saying there isn't a site out there that I am forgetting or that there isn't a site that I never knew about, but I would be really surprised.

Slashdot has been around a long time and has a dedicated following, is it a flash-in-the-pan popular site? I mean, /. is really a place for people who were/are on the forefront of the emergence of the Net into our lives. Can anyone think of any single site that crosses more culture, economic, or age brackets? Say what you want, but they did something right. And picking themselves up from their bootstraps to comeback from near-defeat at the hands of MySpace is something to be respected.

Re:An eIPO often seems like

[FooAtWFU]

Facebook is also a lot better at keeping itself current on the Web than properties like MySpace and AIM. AIM took care to lock down its protocols to outside agencies, trying to use it to build the AOL brand - but it wasn't strong enough, so it backfired, and that didn't help much. MySpace as a site is a stinking pile of garbage - not even the people, just the HTML - they can't do technically interesting things. Facebook, on the other hand, has done significant outreach to developers, even beyond stupidity like Mafia Wars. Significant sites are on board. Heck, you can log on to external sites with your Facebook account now. That's federated identity management, Kyle! And things like the infamous Beacon - despised by some, sure, but definitely a sign that they're extending their reach into interesting places. (To potential shareholders, that is.)

Twitter has a bit of a shot but I think it's a little too much of a one-trick-wonder. If there's one social-media-networking thingy today that's got serious money potential, I'd say Facebook is it.

The other reason for doing this

[BlueBoxSW.com]

The other reason for doing this is if you plan on distributing profits based on shares.

You can give more money to some people while giving the illusion of ownership to all.

Re:It would be only fitting ;)

[icebraining]

When was Slashdot supposed to be a place to make friends? I come here for the news *cof*, old memes and car analogies.

They are trying to go public

[GWBasic]

Facebook is trying to go public. About a month ago, one of their recruiters was trying to get me to sign an NDA for an on-site interview; and he refereed to their impending IPO as the justification for the NDA.

I didn't sign the NDA.

Re:An eIPO often seems like

[u38cg]

Indeed. The point about Facebook is that they have effectively reimplemented everything that most people use the internet *for*: staying in touch, sharing photos, chat, email, and propagating news and links. If they manage this effectively and keep their network effect, I can't really see them losing significant ground.

No, don't quit the 401(k).

[Estanislao Mart�nez]

401(k) plans may suck, but you're investing pre-tax, and your employer may be matching your contributions, in which case you'd be leaving money on the table by not participating. Over the long term, the investment return on the tax savings and an employer match are more important than the mediocre performance of your employer's sucky 401(k) plan. Here's better advice:

1. First priority is to contribute to the 401(k) plan up to your employer maximum match. Make sure that you pick the lowest-cost, most diversified investment choices offered in the plan (i.e., the ones that suck the least). Index funds are ideal, so if your 401(k) offers some, pick those up.
2. Once you've made the match, your second priority is to put further contributions into an IRA from a good provider. I'll insist that you go with Vanguard.
3. Once you've filled up the IRA, then if you have extra money to invest, put it into the 401(k), so you get more of the tax savings.
4. When you leave your employer, make sure to roll the 401(k) over to an IRA at a good company like Vanguard.
5. Learn about asset allocation and rebalancing, and practice them religiously.