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THE BIG DAY

Facebook Aims for Smooth Opening

Facebook Aims for Smooth Opening Robyn Beck, AFP / Getty Images

First day of trading pivotal for $104B IPO.

No pressure, Mark Zuckerberg! Wall Street insiders are closely tracking the nation’s biggest Web IPO offering ever—Facebook—making sure things go well on day one of its trading. The third-biggest IPO was made official Thursday when the company announced it had raised $16 billion in funding to seek a $38 share price, giving the Silicon Valley leader a $104 billion valuation. "It has to go off without a hitch. There's going to be a lot of visibility on this," said Larry Tabb, CEO of a consulting and research firm. "If this goes poorly, it will not just be a poor reflection on NASDAQ—it will be a poor reflection on the U.S. market structure." Facebook shares are scheduled to begin trading at 11 a.m. EST, 90 minutes after the stock exchange opens, giving brokerage firms enough time to process what is anticipated to be an enormous amount of opening-day orders.

Read it at The Los Angeles Times

California Blues

Facebook Won't Save California

The social media giant’s $104 billion IPO is part of a tech boom that benefits only the wealthiest and best educated, and it won’t do much at all for California’s flagging economy, writes Joel Kotkin.

The  $104 billion Facebook IPO testifies to the still considerable innovative power of Silicon Valley, but the hoopla over the new wave of billionaires won’t change the basic reality of the state’s secular economic decline.

This contradicts the accepted narrative in Sacramento. Over five years of below-par economic performance, the state’s political, media, and business leadership has counted on the Golden State’s creative genius to fund the way out of its dismal budgetary morass and an unemployment rate that’s the third highest in the nation. David Crane, Governor Schwarzenegger’s top economic adviser, for example, once told me that California could easily afford to give up blue-collar jobs in warehousing, manufacturing, or even business services because the state’s vaunted “creative economy” would find ways to replace the lost employment and income. California would always come out ahead, he said, because it represented “ground zero for creative destruction.”

Schwarzenegger’s successor, Jerry Brown, and his economic team have been singing the same song, hoping, among other things, that the Facebook offering, and other internet IPOs, might bring in enough money to stave off the state’s massive, growing deficit, now estimated at more than $16 billion. Yet even as the new IPO wave has risen, California’s fiscal situation has worsened while state tax collections around the nation have begun to rise.

Of course, Facebook’s public offering will help, but only so much. According to the legislative analyst’s office, the Facebook gusher should put an additional $1.5 billion into the state coffers this year, roughly one tenth of the state deficit, with perhaps another billion in the following few years. This constitutes a nice win, but barely enough to sustain the state even over the short—not to mention the long—run.

Robin Givhan on Mark Zuckerberg's laid back style.

The problem lies in large part in the nature of the economy epitomized by Facebook. Being based in cyberspace and driven entirely by software, such companies employ almost exclusively well-educated workers from the upper middle and upper classes. In the past “a booming tech economy created all kinds of jobs,” notes Russell Hancock, president and CEO of Joint Venture Silicon Valley, a key industry research group. “Now we only create these rarefied jobs.”

As Hancock suggests, this contrasts with previous California booms. Back in the ’80s or even the ’90s, California’s tech booms were felt broadly in Orange and other Southern California counties and appeared to be moving inland to places like Sacramento. Anchored by its then dominant aerospace industry, Los Angeles remained a tech power on its own while enjoying employment from a burgeoning fashion industry, the nation’s dominant port and, of course, Hollywood. 

In contrast, today’s job surge has been largely concentrated in a swath from San Francisco down to Sunnyvale. These firms create the kind of outrageous fortunes celebrated in the media, but their overall employment impact has not been enough to keep California even at parity with the rest of the country. Over the past decade, the state has created virtually no new STEM jobs (science, technology, engineering and math-related employment), while the U.S. experienced a 5.4 percent increase. Arch rival Texas enjoyed a STEM job gusher of 13.6 percent. More important still, mid-skill jobs grew only 2 percent, one third the rate nationally and roughly one fifth the expansion in the Lone Star State.

SOCIAL NETWORK

Facebook IPO Could Top $16B

Facebook IPO Could Top $16B Timur Emek, dapd / AP Photo

Source says company has increased IPO size by 25 percent.

Facebook will increase the size of its initial public offering by 25 percent, a source told Reuters on Wednesday—meaning the company could raise as much as $16 billion before its shares go public on Friday. If the IPO is increased, it will be the third-largest initial share sale in history, after Visa and General Motors. According to the source, Facebook will add about 85 million shares, for a total of 422 million expected to be floated in the public offering. The news about the shares came just one day after GM announced it would be pulling its ads from Facebook, saying the ads are ineffective.

Read it at Reuters

BIG MONEY

Facebook Sets IPO at $86B

Facebook Sets IPO at $86B Marcio Jose Sanchez / AP Photo

Shares of stock set at $28 to $35 for IPO later this month.

It is now officially OK for Mark Zuckerberg to bathe in $100 bills. The Facebook CEO can’t help but be washing himself in cash as his company moves closer to an initial public offering, reportedly set for May 18. The social networking company revealed Thursday that it would value itself at $86 billion when it goes public, aiming for shares of stocks to be worth $28 to $35 each. The IPO would tower over Google’s 2004 offering of $23 billion. Initially thought to be aiming for around $100 billion, Facebook will list on the NASDAQ stock exchange, and Monday is said to begin a series of meetings with investors to drive up interest.

Read it at The New York Times

Serious Cash

Facebook Math: $10K = $8M

As Facebook’s IPO approaches, one venture capital firm—Accel Partners—is poised to land what’s likely the biggest payoff in history. Gary Rivlin on their record-setting bonanza.

The world of venture capital is rich with tales of colossal payoffs. The partners at Benchmark Capital invested $6.7 million in eBay in 1997—and saw their stake mushroom to $400 million when the company went public one year later. Sequoia Capital and Kleiner Perkins Caufield & Byers invested $12.5 million each in a small search startup called Google back in the late 1990s—and for their troubles walked away with a payout of around $2 billion a piece.

Yet it looks like the record books need to be rewritten with Facebook on the verge of an initial public offering. A single firm, Accel Partners, stands to make somewhere around $10 billion on the $12.7 million it invested in Facebook in 2006. 

Ten billion dollars on a $12.7 million investment: that’s a return of about 800 to 1. That’s $8 million for every $10,000 Accel invested.

And an 800-to-1 payout assumes Facebook has a fairly disappointing stock-market debut. An IPO that values Facebook at $100 billion—at the upper range of the possible, according to published reports—would mean Accel and its investors (university endowments, pension funds, rich individuals) will collectively see an $11.4 billion payday.

That would be a return of nearly 1,000 to 1—or “1,000x” in venture-speak.

Interestingly, Jim Breyer, the Silicon Valley capitalist who pushed his partners to invest in Facebook in 2006, was widely ridiculed within venture circles for paying so high a price for a share of a one-year-old service then limited to the college crowd. “We always go into a deal hoping to make 10 times our money,” Breyer told me at the time. “I don’t know how this one will play out, but for now it’s going extremely well.”

Venture capitalist David Sze was also an early investor in Facebook, though his firm, Greylock Partners, didn’t get in quite as early as Accel. Greylock and also a second firm, Meritech Capital Partners, which invested alongside Greylock, stand to make a return of around 200x each on behalf of its investors—“which would definitely put both in the all-time Top 10 list,” said one VC. (Sze declined comment for this piece, citing the quiet period that starts once a company declares its intentions to go public.)

FACEBOOK

A sign with the "like" symbol stands in front of the Facebook headquarters on Feb. 1. (Justin Sullivan / Getty Images)

CAVEAT EMPTOR

Beware the Facebook Hype

No rational person thinks Facebook is worth $100 billion. But that’s OK—there are more than enough irrational people to make the company’s massive IPO deal happen.

Facebook is expected to announce its IPO registration Wednesday, and is rumored to be seeking a valuation of $100 billion. That’s more than half of Google’s market value, which stands at $188 billion. But Facebook brings in only one 10th the revenues that Google does. So how can it possibly be worth half as much as Google?

That is a question that any other company might have to answer as it tries to sell stock to the public. But not Facebook. This company is different. No matter what the price, investors will clamor to own a piece of a company that has defined social networking and has, in effect, built its own private Internet, with more than 800 million members.

Facebook reportedly aims to raise $5 billion (earlier reports guessed $10 billion) in the deal, which would take place in May and rank as one of the biggest IPOs of all time. (See chart.)

There are lots of reasons to be wary, including these:

• Facebook’s operating profit for 2011 is said to have been about $1.5 billion. That’s a respectable profit margin, but by no means outstanding.

• As Business Insider pointed out, Facebook is seven years old and its revenues lag behind what Google’s were in its seventh year. Moreover, Google was building its business at a time when there was less overall ad spending on the Internet.

• Google’s answer to Facebook, the Google+ social network, now has 90 million members and is growing quickly. It’s no threat to Facebook today but could be in the future.

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