Last week, Facebook took the plunge from being a private corporation to being a publicly traded business. The move from private to public allows for investors to buy into the tech giant company, while Facebook gets some extra cash for future growth. Facebook is hoping that their IPO (initial public offering – the first sale of stock by a company to the public) will raise about $15 billion and sell shares for between $34 and $38. There will be a total of 421 million shares (single unit of ownership) available at the market debut but it’s possible to be raised to 484 million if the demand is very high.
Despite the high numbers, the people who buy into Facebook will have very little control since 56 per cent of the voting shares (a share of stock giving the stockholder the right to vote on matters of the corporation) will remain in the young hands of Mark Zuckerberg. Keeping that in mind, most ordinary folk wouldn’t even have a good chance of buying IPO shares since the financial institutions which supported Facebook’s move will be giving priority to their own clients before everyone else.
Now before you try to get one of these valuable shares, here are some things to consider. 85 per cent of Facebook’s profit is advertising, which has the potential to cause many problems. For example, there have been recent reports of large companies like GM pulling their ads from Facebook, saying that they are “ineffective.” There is also the rising concern since most Facebook advertisers see the website as “experimental.” Facebook also loses revenue every time that you check your account on your mobile device instead of your computer since there aren’t any ads on the mobile versions (yet).
The list of possible problems with Facebook doesn’t end there too! One of them is even as simple as the fact that Facebook will run out of people at some point. There are already 901 million active monthly users and that number could definitely go up, but will it? There are 7 billion people on the planet and Zuckerberg could buy all of them a computer to get them on the website. However, they’re already meeting resistance with copy cat websites like China’s Renren, which could have 200 million users by the end of the year and controls the Chinese market. It’s also possible that Facebook could go the way of Nexopia, Friendster or MySpace (though very unlikely). Facebook could also face a leadership crisis since Mr. Zuckerberg is largely viewed as some hoodied young kid in the rest of America’s boardrooms. He seems to be portrayed as a tech rockstar both in film and his real life. Just a while ago, he bought Instagram for $1 billion without actually consulting anyone. We can all only imagine what would happen if he made a mistake. Along with his only other partner in the business, COO Cheryl Sandberg, they’ve built a strange mentality within their offices which boasts such slogans as “move fast, break things” and “done is better than perfect” which could potentially be their downfall. Despite all these risks, only time will tell if Facebook’s IPO will be a huge success and whether or not the company will continue to prosper. My recommendation? Just sit down and wait.