A bit of visual commentary created by CNNMoney reporter Jose Pagliery.
What does billionaire Mark Zuckerberg want to buy with his (ok, Facebook’s) money? Startups, startups, and more startups. Just minutes after the closing bell rang on Facebook’s first day of public trading, the company announced its acquisition of social and mobile gifting startup Karma.
Here’s the post from Karma’s blog:
We’re thrilled to announce that Karma has been acquired by Facebook. The service that Karma provides will continue to operate in full force. By combining the incredible passion of our community with Facebook’s platform we can delight users in new and meaningful ways.
A few days ago, we offered our own predictions about what startups Facebook should acquire. Karma wasn’t on the list, but hey, we’re not fortune-tellers. With billions in its cash vaults, Facebook can afford to grab any upstarts that catch its eye. -Laurie
Facebook’s initial public offering has many people asking: “If I want to buy shares, how do I do it?”
We at CNNMoney wondered the same thing, so we decided to find out the direct way: by trying to buy a small handful of Facebook shares. Three of our reporters — Catherine, Julianne and Stacy — opened accounts at three online brokerages (E-Trade, Charles Schwab and Zecco). We’re keeping a running blog on our progress.
We’re planning to hold on to our shares for one week, then sell them off on Friday, May 25. If we have any gains from the experiment, they’ll be donated to The Time Is Now To Help, a CNN Heroes Top 10 honoree.
Here’s an important disclaimer: We’re not recommending Facebook as an investment; we’re buying in simply to illustrate how the process works. Anyone considering buying Facebook shares should read through the company’s IPO prospectus, which describes Facebook’s financial condition and its risks. (The short version: The future is mysterious, and Very Bad Things can happen to companies. So don’t, like, bet your college fund on this IPO.)
Here we go …
Quick links to jump to our trading milestones:
How an IPO works
Opening a E-Trade account
Our failed attempts to get IPO shares at Schwab, E-Trade and Zecco
New plan: We’ll buy on Friday
Julianne’s Zecco account vanishes
We own 2 shares!
Our final tally: 4 shares
Untangling the mess
Selling off our shares
Tallying the losses
For those keeping score at home, you’ll remember from the last post that Stacy lost $27.37 on her single Schwab trade (including commission and other fees).
Catherine got shares close to the IPO price, at $38.01, but she still lost out. First, she paid a $30 fee to fund her E*Trade account. Then she placed two separate buy orders, which cost $9.99 each in fees. She sold each share at a $5.10 loss, plus a single $9.99 commission fee for the sale. Total loss: $70.17.
Julianne wasn’t even able to buy a share because she couldn’t get her Zecco account funded. She had to mail in a $30 check to pay Zecco’s penalty fee. Total loss (including a stamp!): $30.45.
Belinda was dragged into our experiment after Julianne’s attempt failed, and she’s hanging onto the share she bought on Sharebuilder at $42 each. She’s hoping to hang on until Facebook’s stock price gets back above water.
So, tallying up the first three accounts gives us -$127.99.
All in all, it’s been a great learning experience for us — especially considering that Facebook’s IPO was so fraught with problems — and we hope you enjoyed it too. Thanks for following along with this uber-long Tumblr post. Maybe we’ll all become millionaires next time.
Catherine, who scored a share close to the IPO price ($38.01), sold at market open for a 13% loss. Check out her full story here on our new investing page, The Buzz.
Next up was Stacy, who put in a sell order after the market opened:
“Wow, so that’s what it’s like when an order executes immediately. At 9:43 am, I put in a sell order for my share. A second later, it’s done: The share I bought for $42 vanishes back into the market at $32.53.
Total tally: I’m down $9.47 on the stock loss, and $17.90 on trading commissions ($8.95 each for buying and selling), for a total loss of $27.37.”
Belinda, who bought her Facebook share on her own and joined our experiment at the last minute to pinch-hit for Julianne, is keeping the share she bought at $42. She’s planning to hang on until it’s above water again.
As you might remember, Zecco is charging me a fee because my checking account didn’t link correctly and couldn’t transfer money to my trading account. A customer service rep couldn’t figure out why, and I’m still not sure what happened.
Nasdaq’s admission Monday that it suffered a “technical error” was the first official confirmation that things went way screwy on Friday. Over the past few days, the depths of the debacle became clearer, and we learned that our hugely delayed trade notifications were a ubiquitous problem. Even worse: Some people waited days to find out if their orders went through and at what price. Hibah heard from Fidelity, among others, that some of its order confirmations were still outstanding as of Tuesday night.
The price confusion got us wondering: Why did we get some of our shares at $42 and some at $30.01? All of our orders were placed well before 11 a.m., Facebook’s planned opening time.
Here’s the tick-tock on our trades: Stacy put in a $200 limit order on Schwab Thursday night. Belinda put in her buy order (with a $50 limit) at Sharebuilder at 8:30 a.m. Friday. Catherine put in a pair of limit orders ($50 and $150) on E-Trade just after the markets opened at 9:30 a.m. Friday.
Here’s the results: Stacy got a $42 share with a listed processing time of 2:17 p.m. Belinda got a $42 share, processed at 1:50 p.m. Catherine got two $38.01 shares, processed at 11:53 a.m.
Why the discrepancy?
This is the story from Schwab, which Stacy called to ask about her trade: Orders put in before the open are required, under regulatory rules (they said), to be filled at the opening price. For Facebook, that was $42. When Stacy tried to change her order around 2 p.m. — which at that point still appeared unfilled — it was already too late. The trade was locked in for execution at the opening price. (After the original trade finally posted, Schwab cancelled the change order.)
Translation: Just like the big traders, we were in the dark for hours about what shares we actually owned, and at what price.
So why did Catherine get shares at $38.01? We’re still not sure. Best guess: Since she submitted her bid after the market opened, it went into the queue for fulfillment right *after* Facebook’s opening trades. The stock almost instantly plunged, so she got lucky and caught the low.
Obviously, this is a pretty terrible way to run a stock market. Catherine spoke with several small investors with horror stories — “I lost $40,000!” one told her. One major market maker, Knight Capital, is estimating its losses stemming from the Nasdaq error at $30 million to $35 million.
Sounds like we’ll be lucky to come out of our experiment with a mere two-digit loss.
Monday, 2:15 pm: We’ll do a full gain/loss tally at the end of the day Friday, when we unload our 4 Facebook shares, but right now it’s not looking good: Shares have spent all day Monday trading below the $38 IPO price.
Nothing about this experiment went quite the way we expected — which is great, since that’s the whole point of experiments. The glitches we hit when we tried to buy shares through Schwab were apparently part of Nasdaq’s general screwiness, which was so bad that Nasdaq is revamping its IPO process to fix previously undiscovered technical bugs.
We also didn’t expect shares to drop so quickly below their IPO price. It was a great illustration of what many analysts warned (and what we reported! On Thursday!): IPOs are risky, and regular investors should exercise extreme caution before jumping on the bandwagon. Lots of readers contacted us before the IPO to complain about how “only insiders” would have access to the IPO price. ”Ordinary people are boxed out,” as one commenter put it. “And the US Gov’t allows these jerks to get away with it.”
Right now, a few of those insiders are probably wishing they too had been boxed out.
Friday, 5:30 pm: Julianne narrated a video guide to our shopping experiment.
Friday, 4:21pm: Closing bell has rung, and the final price for Facebook is $38.23 — basically flat. Trading volume set an IPO record, though: 567 million shares changed hands. We’ll tally up where we stand shortly.
Friday, 3:37pm: Market maven/Buzz columnist Paul LaMonica suggests that for next week’s Tumblr experiment, we learn how to short shares.
Friday, 2:24 pm: We’ve added a third share to our collection: Belinda’s Sharebuilder order went through at 1:50pm at precisely $42. But ouch — the commission on it was $16.90. Facebook is going to have to rise sharply for us to come out ahead on this deal. The actual commission is $9.95; the other $6.95 was a fee for rush-funding on the account.
"Schwab’s page now has this notice up: ‘Facebook (FB) is now trading, although we are experiencing some issues with orders. These issues do not appear to be unique to Schwab. There are currently industry-wide delays in reporting trade executions. We apologize for the inconvenience.’
I’m not sure if I did something wrong in placing my order — it’s just sitting there. I hit ‘change’ to see what my options are. Schwab still won’t let me set a market order; it’s sticking with the ‘Schwab will only accept limit orders on the purchase of an IPO stock on the first day of trading’ line. I try switching the timing of my order to ‘fill or kill,’ and get another error: ‘A Fill or Kill order requires a minimum round lot order quantity (usually 100 shares).’ ‘Immediate or cancel’ is also a no-go — Schwab tells me it’s not a valid designation for Nasdaq orders. My two only options seem to be a ‘day’ order or sticking with ‘good until canceled.’
So I switch to that, and lower my limit to $50.
… and that seems to go right back to the holding queue. Still no share. Something seems screwy here.”
Friday, 1:41 pm: We’ve been loving the reader comments on this experiment, and we’re swapping emails with some fellow buyers. We chatted this morning with Tam Ha, a trader from Virginia who successfully snagged a piece of E-Trade’s allotment. Tam has been with E-Trade for four years and has assets with them “in the low six-figures,” but was IPO bidding for the first time. Tam put in for 550 shares and agreed to pay up to $39 each for them.
Result? Tam got 100 shares at the $38 IPO price. “My original plan was to sell maybe 200 or 250 shares within the short term to cover the cost,” Tam says. But with fewer shares in hand and a lower pop than many predicted, Tam’s plan is being revised: “I might keep them for a while and see how it goes.”
Catherine’s E-Trade orders both went through at $38.01, just one penny more than the IPO price we tried and failed to get. Wow.
So far, volume has been wild — 282 million shares have changed hands already — but the price has been remarkably stable. We’ll keep our eyes on it. We’re now invested in this roller-coaster ride.
Friday, 12:22 pm: Finally had a break to go check our accounts. First up, Stacy’s Schwab … where the order is still sitting there, open but unexecuted. What the hell? Schwab has this notice up: “UPDATE: FB is now trading, although NASDAQ is reporting slowness in acknowledging orders.” Seems like it shouldn’t be this slow, though.
Friday, 11:34: Go time! Opening trade at $42.05. Time to see soon what we got and at what price …
Friday, 11:19 am: Now seems a good time to knock off for lunch, right?
Friday, 10:17 am: Here’s the tale from Catherine on finally getting her E-Trade order through.
“I tried four times unsuccessfully but refused to give up. Shortly after the U.S. markets opened, I logged my first victory! While eTrade says trading is ‘halted,’ it allowed me to place my two limit orders — one at $50 and one at $150. To echo Stewie from Family Guy –’Victory is mine!’”
Friday, 10:04 am: Catherine is in: E-Trade opened up for market orders at 9:30 am, so she got in her 1 share order with a $150 limit.
Schwab’s page now has this notice about when trading will begin: “Subject to Change, NASDAQ expects the initial Public offering of Facebook, inc. will be released on NASDAQ for quotation around 10:45 AM ET and for Trading around 11:00 AM ET.”
Friday, 9:35 am: We have a third account in the running again! Webmaster Belinda Black joined in: She’s putting in a one-share order for market open through her Sharebuilder account. More details to come, but we’ll have at least two early orders in place now.
Friday, 9:33 am: Catherine still hasn’t been able to put in an E-Trade order. The site now says: “Market orders will not be accepted prior to trading on the Nasdaq.” Wow. That’s annoying for anyone trying to get in early. Hibah is calling E-Trade’s PR people to ask about the restriction.
Friday, 5/18/2012, 9:31 am: Zuck just rung the opening bell. Off we go!
Thursday, 7:55 pm: Batter #3. Stacy logged on to Schwab to place an FB order. Here’s the story:
"I’ve never done this before, so I’m groping my way through the system. I went to Trade Stocks, and popped the ‘FB’ symbol into the ‘order entry’ field. Action: Buy. Quantity: 1. Order Type: Er?! It wants to know if I want a ‘Market Order’ or ‘Limit.’
Hibah says I should really, really use a ‘limit’ order, which means setting a ceiling on the price I’m willing to pay. But we want to buy Facebook No Matter What, so I tell the site to make a Market Order.
It seems Schwab agrees with Hibah: That’s a terrible idea. I get this error message: ‘Schwab will only accept limit orders on the purchase of an IPO stock on the first day of trading.’ Ok, ok. I pick $200 as my limit.
Last choice: Schwab wants to know about timing. Do I want a ‘Day Only,’ ‘Good Until Canceled,’ ‘Fill or Kill’ or ‘Immediate or Cancel’?
I admit, I had to go do some Googling. Some of those are intuitive, but what does ‘fill or kill’ mean? (Apparently it means ‘fill right this very second or not at all.’ Since Facebook isn’t trading yet, that won’t work.) I picked ‘Good Until Canceled’ — that seemed to mean ‘keep trying until this works.’
The ‘order verification’ screen came up next, giving me a quote price of $38 per share and a bunch of bright red warnings that I should look very carefully at my limit and be sure I for-reals want to trade at that price.
Damn the torpedoes: I click ‘Place Order.’
And get a confirmation screen! Woah — it worked!
The ‘order status’ page confirms it: I have an active ‘limit or better’ order for one share of Facebook at $200, which will stay open until it expires on 5/17/2012. It’s ON.”
Thursday, 7:03 pm: It turns out Facebook won’t start trading at the opening bell tomorrow — it’ll take an extra hour or so. Why? "It’s not a delay or a problem, just a matter of style," says a Nasdaq source. “We want to have an IPO stand alone at its own special time.”
Thursday, 6:43 pm: Disaster! We’re down one account! Julianne’s Zecco funding vanished — she logged on and found a negative $280 balance on her account. What happened? We’re still not sure. Here’s her write-up of the long customer-service saga.
This investing stuff can be rough sledding for newbies.
Thursday, 6:08 pm: Catherine is our first guinea pig: Can we put in an order for shares yet? She logged on to E-Trade and gave it a try.
Verdict: Nope. Here’s the error message saying that orders for FB “cannot be accepted online at this time.” We’ll try again first thing tomorrow …
Thursday, 4:21 pm: Pricing is in! Facebook’s IPO buyers will get shares at $38. We’re guessing we’ll be paying more than that when we buy at the market open.
Thursday, 1:21 pm: Here’s a sobering stat from our colleague Dave Goldman: “Of the 31 Internet IPOs held since the beginning of 2011, 22 are currently trading below their closing price on the day they went public. More than half — 16 companies — are trading below their offer price.”
Check out his story on tech IPOs’ dismal track record. For extra fun: It’s got quotes from TheGlobe.com founder Stephan Paternot. Stacy, who was a cub reporter during the first dot-com extravaganza, does this PTSD twitchy-flashback thing when the phrase “TheGlobe.com” comes up.
Thursday 5/17/2012, 7:15 am: Today’s the day! Tonight Facebook is expected to set its final IPO price and release shares to those who have placed orders for a piece of its IPO stock allocation.
Want to get in on that deal? You’re too late. Facing heavy demand for Facebook shares, most retail brokerages “closed their books” — meaning they stopped taking customer orders — earlier this week. But even if you’d placed an order early, you probably wouldn’t have been able to get a piece. Here’s what happened when CNNMoney tried to place IPO share orders through Charles Schwab, E-Trade and Zecco.
Wednesday, 2:37 pm: Catherine got hold of an E-Trade rep to quiz him on why E-Trade said no bueno to her attempt to buy IPO shares. Here’s how it went down:
"Wildly disappointed by my rejection, I got on the phone with E-Trade to find out why I wasn’t a stellar candidate to put in a pre-order for Facebook. I mean, I have a good job, decent salary, no debt and a fairly good amount of trading knowledge — so why aren’t I feeling the love?
One long phone call later, I still don’t really have an answer about what in my customer profile the E-Trade gods didn’t like. The people I spoke with didn’t know what it was that disqualified me. That actually does make a bit of sense: The profile questionnaire is multiple choice, so if they were able to tell me what the ideal profile was, I could have skewed my answers to fit the bill. Granted, you’re only allowed to apply once, so I would have needed to ask them ahead of time … but there’s still some logic to it.
While I’m still smarting from the rejection, I’m looking forward to Friday, when Facebook debuts and I can freely buy my one share.”
Hibah also made some calls on this, and learned of an additional hurdle: E-Trade only sells IPO shares in 50-share increments, according to spokesman Brett Goodman. So if someone qualifies to buy Facebook shares, they’ll have to buy at least 50 of them. At $38 each, the top of Facebook’s proposed price range, that’s a $1,900 outlay.
Wednesday 5/16/2012, 2:19 pm: Julianne’s Zecco account says it’s fully funded — her transfer cleared. Whew. She now has the cash to snap up a Facebook share on Friday.
Tuesday, 4:35 pm: Like most small-time investors, we’re going to be shut out of Facebook’s actual IPO sale on Thursday night. So, new plan: We’ll buy shares in regular trading Friday morning, when the market opens.
Buying shares in open market trading doesn’t require any special, insider access or an account feathered with six-figure sums. You simply need a basic brokerage account with enough cash in it to cover the cost of your shares and their trading fees. Using our Schwab, E-Trade and Zecco accounts, we’ll each put a market-open “buy” order in on Thursday seeking 1 share of Facebook stock when it becomes available Friday morning.
Jimson: Thank you for contacting Zecco Trading. How may I assist you today?
You: Hi there. Does Zecco have an IPO center where I can check out upcoming offerings?
Jimson: I would be more than happy to assist you.
Jimson: Unfortunately, we do not have an IPO center as of yet.
You: OK thanks - so there’s no page to try to buy FB at the offering price?
Jimson: Unfortunately, customers are only allowed to buy Facebook from the secondary market at hte market price.
You: thank you. So I can buy only at market price on Friday after the trade opens?
Jimson: You are able to purchase Facebook shares on the day of the IPO on May 18. Simply place an order on May 18 as you would place any other order. Unfortunately, you would not be able to place any orders until the day of.
Brokerages can only sell shares in a company’s IPO if they’re an underwriter of the offering (as E-Trade is for Facebook) or have a deal with the underwriters to snag a piece. Zecco hasn’t struck those deals, so its customers won’t be able to buy shares at Facebook’s IPO price.
E-Trade requires customers to submit a “customer profile” before they can trade in an IPO. It asks for information such as your household income, liquid net worth, investable assets, and level of investment experience. Catherine filled that out truthfully — journalists aren’t rich — and promptly got DQ’d.
"Based on the information you provided in your Customer Profile, you are ineligible to participate in this offering," the site announced.
(We like the bright red and bold on the “you are ineligible.” Nice touch.)
Why wasn’t Catherine eligible to buy? She’s calling E-Trade to find out.
We picked Schwab as our first spot for trying to buy IPO shares. From Stacy:
"I clicked ‘Trade,’ then ‘IPOs,’ and hit this notice:
Facebook, Inc. Offering Window Information
Please be advised the Conditional Offer to Purchase window for the Facebook, Inc. Initial Public Offering will be closing at 3pm ET on Tuesday, May 15th.
Yikes, early deadline — but there are still four hours to go, so I should be fine. The Schwab site shows me the basic details of Facebook’s offering, including the expected pricing date (5/17/12), the number of shares being offered (337.42 million) and the expected price range ($34-$38 per share). Next step: Entering a “conditional offer to purchase.” I click the buttons to “Start COTP.”
And then, strikeout. The site gives me back this message: ‘Based on the account information we have on file, you are not able to participate in this offering.’”
That’s all Schwab offered — no reason why Stacy wasn’t eligible to buy. CNNMoney markets reporter Hibah Yousuf reached out to a Schwab representative for more details.
It turns out that like many brokerages, Schwab has rules about who it will let buy into an IPO. In Schwab’s case, the minimum requirement is that you have $100,000 in your investment account or have made at least 36 trades in the last year. Even that won’t guarantee you access: “It’s more case-by-case for each client, depending on their situation,” company spokesman Michael Cianfrocca said.
Other brokerages have even steeper requirements. Ameritrade, for example, wants to see at least $250,000 in your investment account or a record of 30 trades in the past three months — and it too has some additional, unspecified “eligibility requirements,” according to a company representative.
Ameritrade and Schwab declined to go into more detail, but it would be typical for a brokerage to take a close look at a client’s stated goals and overall financial condition before green-lighting a risky investment like an IPO purchase. If you’ve designated yourself as a conservative investor and have never bought into an IPO before, the company’s reps might want to have a chitchat with you first.
CNNMoney tech editor Stacy Cowley had an unused Charles Schwab brokerage account linked to her Schwab checking account — perfect for our purposes.
For our third account, we checked out a few online brokerages with low trading fees and picked Zecco. Tech reporter Julianne Pepitone set up a new account — a process that took less than 10 minutes, start to finish. To fund the account, she linked her checking account and transferred over some cash.
That generated this message: “Your initial deposit of $250.00 was submitted. Once processed, you will receive an email confirming the transfer of funds into your Zecco Trading account.” How long will that take? We’ll see …
Friday 5/11/12, 12:22 pm: The first step in buying shares in a company is to open a brokerage account you can use for the transaction. For our “let’s buy Facebook!” experiment, CNNMoney markets editor Catherine Tymkiw opened an E-Trade account. Here’s her description of the process:
"As I sat down at my laptop, I wondered, ‘Is this really something I want to do?’ But what the hell, you only live once.
It’s surprisingly easy to open an account online. That may not be news to most people, but I tend to trust my money with people who I think are much smarter than myself, so I shy away from the do-it-yourself trading. Anyway, within about 10 minutes, I had an account number and an account just waiting for my money. There are four different ways to put money into an E-Trade account, depending how long you’re willing to wait. It can take anywhere from 1 to 8 days.
Since Facebook is going public in a week, I’m under a little time pressure. E-Trade has a free, quick transfer option that takes 3 business days, but you have to first link your checking account with E-Trade, which also takes a couple of days — too late for me if I want to get in on the first day of Facebook trading.
The option I went with was a straight wire transfer. The bank charges $30, but E-Trade doesn’t charge any incoming wire fees. The extra cash was worth the peace of mind to ensure that I’d have my account funded well ahead of the May 17 IPO. The whole process took about 20 minutes, give or take a few.’”
Thursday 5/10/12, 1:15 pm: To buy shares in a newly public company, it helps to know that an IPO happens in two stages. First, the company’s underwriters buy shares directly from the company at the IPO price. They then sell shares at that price to their own clients, which include major players like mutual funds, hedge funds and institutional investors. That typically happens in the evening, and for Facebook, it’s on track to happen Thursday night.
The next day — Friday, May 18 — those who bought IPO shares can turn around and resell them on the open market. That’s when average investors have their best shot at buying shares.
Can retail investors — that’s ordinary people like us — buy in at the IPO price?
Technically yes, but as we found out, it’s not easy. Brokerages only want experienced investors, people with lots of money and lots of trading experience, buying in on IPO deals.
There’s a good reason for that restriction: IPOs are risky investments. There’s a widespread expectation that Facebook shares will rise when they begin publicly trading, but that’s not always the case for IPOs — even much-buzzed-about IPOs of well-known companies. When Farmville maker Zynga went public in December, its shares ended their first day of trading at $9.50, down 5% from the $10 buyers paid for IPO shares.
Analysts say Facebook is an especially dicey bet, because its valuation is already extremely bullish compared to its underlying financial fundamentals. Here’s some recommended reading for those considering investing: “How big does Facebook really have to get?" and "5 reasons to not ‘like’ Facebook’s IPO.”
Still, lots of people want to buy shares of Facebook at its IPO price, so we’re giving it a try. Stay tuned …
Facebook filed an amended S-1 — the paperwork for an IPO — late on Wednesday. Our post-5pm brains are still picking through it, but the big takeaway is that Facebook estimates “false or duplicate accounts may have represented approximately 5-6%” of its monthly active users as of the end of 2011.
Facebook’s estimate is based on “an internal review of a limited sample of accounts and we apply significant judgment in making this determination, such as identifying names that appear to be fake or other behavior that appears inauthentic to the reviewers.”
The estimate could be thrown off by a number of factors, including mobile apps that automatically contact [Facebook’s] servers for regular updates with no user action involved, and this activity can cause our system to count the user” as active.
It’s an interesting tidbit, to be sure. But given the financial gymnastics in the S-1s of other recent debuts — here’s looking at you, Groupon and your sales restatements — this amendment feels a little snoozy. Still, chances are we have lots more Facebook S-1s to come before its debut. Can’t wait! -Julianne
Was a stock scam.
In the run-up to Facebook’s IPO filling, we checked with a few data trackers for historical context. With numbers like $5 billion to $10 billion being tossed around for the likely deal size, Facebook is poised to be a pretty whopping offering. But will it be The Biggest Ever?
Nope. At $5 billion Facebook wouldn’t even crack the all-time top 20, according to Dealogic, which has the Agricultural Bank of China Ltd’s 2010 IPO in the #1 spot. That offering raised $22.1 billion. The U.S. recordholder is Visa, which raised $19.7 billion in 2008.
But Facebook should pretty easily set the record for biggest IPO by an Internet-focused company. Who holds the current record? Not Google, which raised $1.9 billion in 2004 — a U.S.record — but is only #3 on the global list.
The top spot is held by “World Online International NV,” which raised $2.8 billion in March 2000, saith Dealogic. I hadn’t heard of it, so I asked the Wikipedias. Turns out it was a total fraud. Touted as the AOL of the Netherlands, it hit all the dot-com stations of the cross: No profits, pricey celebrity ad campaigns, and executives secretly dumping stock before unloading shares on the public.
Facebook will one day go public. When? No one knows — but that doesn’t stop journalists from breathlessly reporting as news every tidbit indicating that Facebook will for-reals-and-trues IPO [circle one: soon/not soon/any minute!!1!/never oh God we’re doomed].
Here’s the rumor cycle from just 2011:
January: WSJ runs “Facebook Sets Stage for IPO Next Year,” reports that the company “gave the clearest sign yet that it is preparing to take itself public sometime next year.” That sign: Facebook told investors it was about to hit the milestone of having more than 500 shareholders, which means it will need to start filing public financial reports — whether or not it IPOs — by April 2012.
At that point, most companies choose to just file their IPO paperwork. So, since way back in January, it’s been clear that Facebook will probably file its S1 by Q1 2012.
Late January: Facebook closes a $1.5 billion funding round that values the company at $50 billion. That’s the last formal valuation Facebook has had — everything since has been based on private deals and thin secondary market trading.
June: CNBC reports that Facebook is “likely to go public by the first quarter of 2012,” at a valuation that sources say “could be pegged at north of $100 billion.”
Mid-June: Lawmakers start toying with the idea of expanding or scrapping the 500 shareholder limit. Chatter ensues about whether that could happen in time to keep Facebook’s financial data from coming out in 2012. Which means … Facebook could stay private forever! Eek!
September: FT announces that “Facebook puts off IPO until late 2012.” It says that “people close to the company” say Mark Zuckerberg wants to “keep employees focused on product developments rather than a pay-out.”
November: Zuck tells Charlie Rose that an IPO is “not something I spend a lot of time on a day-to-day basis thinking about.” Facebook will one day make its shares liquid, but “the promise isn’t that we’re going to do it on any kind of short-term time horizon,” he says.
Late November: WSJ announces that “Facebook targets huge IPO" and says the company is "now targeting a time frame of April to June 2012." (take *that*, FT!) It is “exploring” raising $10 billion in a deal that “might” include a $100 billion valuation.
Our view: Remember those reports from June about how Groupon’s IPO “could value the e-commerce company at as much as $20 billion” (WSJ) or “roughly $30 billion” (NYT)? Fast forward to November, when Groupon IPO’d with a $13 billion valuation. It’s now down to around $10 billion.
Any valuation Facebook is kicking around now is likely to be irrelevant six months from now.
What is Facebook worth? We’ll find out when the IPO paperwork lands (which we’d bet heavily on being right around April) and sheds some light on the company’s financials. Until then, expect to keep seeing breathless “Facebook IPO is coming!” headlines every few weeks. It’s the new “Verizon is going to get the iPhone!" -Stacy
I nominate “Facebook is going to IPO!” as the new “Verizon is going to get the iPhone!”: The story the press will get aflutter about at least once a month, sparking dozens and dozens of very thin stories, until one day the news actually happens. Then we can have one giant frenzy before declaring it old news and moving on to the next big thing.
Today’s round of “Facebook IPO!!!1!” got kicked off by CNBC. The network decided to jazz up not-that-surprising news from unnamed sources — that Facebook will likely IPO in the first quarter of 2012, something Facebook has all but announced already — with a very speculative tidbit that it might debut “with a valuation that could top $100 billion.”
CNBC’s crystal ball isn’t any better than anyone else’s. What will Facebook be worth a year from now? Who the hell knows? The valuation investors have put on Facebook zoomed from $15 billion in 2007 to $50 billion in January. That was the last major funding round for the site; all subsequent “valuation” reports are based on small, private secondary market deals, the latest of which appear (according to Sharespost) to value Facebook at $78 billion.
Every time the tech bubble puffs up a bit more, Facebook seems to gain another few billion in market valuation. So what will it be worth in a year? I nominate a sum I learned about while reporting on IPv6: An undecillion! It’s got 37 zeros, Wikipedia’s chart of very large numbers helpfully informed me.
If that’s a little too ambitious for Facebook, I hope it at least gets its valuation up to a respectable $1 septillion or so before it goes public. -Stacy
Every now and then I go check out online prediction market intrade to see what wacky things people are making wagers on. I was pleasantly surprised to see a plethora ("I just would like to know if you what a plethora is!") of tech-related events.
People (well 2 of them at least) are unsurprisingly expecting that Facebook will at long last go public in 2012. Nothing surprising there. The two traders willing to bet on this are pricing in a 90% chance that an IPO will happen next year. No bets on what the ticker symbol might be though. FACE is taken but BOOK and FB are available, as well as my personal suggestion: ZUCK.
But a Facebook IPO isn’t the only thing you can bet on. You can also put some money down on whether the Zuckerberg biopic will win the Academy Award for Best Picture. (Disregard the fact that the Oscar nominations haven’t been released yet. UPDATE: The noms came out Tuesday morning and it’s no shock that “The Social Network” did get a Best Picture nod.) “The Social Network” is the clear favorite, with 62% predicting a victory. “The King’s Speech” is second with 32%.
Facebook isn’t the only company that intrade has contracts on though, however. There are some contracts (although with no volume as of yet) for how many iPads and iPhones Apple will sell as well as one for Netflix subscriber growth.
But my favorite (for its sheer goofiness) is a contract on whether somebody will win the Google Lunar X prize by the end of 2012. In case you’re not a space geek like my colleague Julianne, Google and the X Prize foundation are offering up to $30 million in prizes to privately funded teams that successfully send a robot to the surface of the moon, have it travel at least 500 meters and relay images back to Earth.
Traders are not optimistic that this is going to happen anytime soon. They are pricing in a mere 15% chance that Larry Page and Sergey Brin will have to pony up any cash by the end of next year. Perhaps there should be a separate contest to send Eric Schmidt to the moon? Hmmm. - Paul