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Facebook IPO: It’s not a share issue, it’s a party

india Updated: May 18, 2012 11:08 IST
Narayanan Madhavan

At some point, the financial stuff does not make sense.

Facebook is all dressed up to list on the Nasdaq on Friday. And dressed-up is just the right word for the anticipated third-largest initial public offer (IPO) in US history because it seems less like a financial event to be watched by sober investors looking for future gains and more like a teenagers’ party on Friday. No one wants to miss out on the fun, it seems.

Agency reports say most ordinary people have only a slim chance of shares as Facebook's underwriters are expected to give priority to their most important clients, usually institutional investors. Typically, only 5 to 30 percent of IPO shares are set aside for retail investors. Guess what? That sounds like a precious party invite.

What does Facebook IPO mean for users?

Not counting those who make apps and games around Facebook, a new industry has sprung up in people trying to tell what to do with the Facebook IPO. Sample the titles of e-books in this game: “"Facebook IPO Confidential" which purports to teach you "How To Get Rich With The IPO Of The Century." Or"The Facebook IPO Pitch: Are You In?" and "How To Invest In Facebook".

That’s huge hype for a company whose annual revenues are only $ 4 billion – only 1/25 of its aniticpated $100 billion (R 544,500 crore) market value on listing. But, at 901 million users worldwide, it seems the number of shares on offer at 241 million seems roughly in the ratio of one share available for every four users.

Scared of Facebook shares? Wager on Friday's close

My guess is that Facebook IPO nerds (I think I can call them that) want to go tell their boyfriend/girlfriend/dad/friends that they have applied for it (as in, “I have applied for Harvard, but I don’t know if I’ll get in”).

At the higher end of $38 a share (Rs 2,000), it sounds like a concert ticket. Like crazy fans at a rock show, these fans will tell each other: “Gee! I got it at the IPO,” with the same tone they used to say, “Wow! I saw the Rolling Stones live!” Sobering thoughts do come from elsewhere on the expected raising of $16 billion.

Facebook's IPO already oversubscribed

General Motors said will stop running paid ads on Facebook by mid-summer due to low consumer impact. At $10 million, GM’s annual spending on Facebook is small money, but General Motors is a corporate icon, whose goodness was once equated with the goodness of America

Now, look at what Martin Sorrell, chief executive of WPP, the world’s largest advertising agency, says: “There's a lot of potential but it's not a slam-dunk. showing the impact of branding on Facebook is going to take a long time.”

Facebook plans to go public to raise $87bn

Such statements might make skeptics wonder if there is another Internet bubble coming up in the market – the kind of which took companies down in 2000 and 2001.

But then, Facebook has integrated with more than 2.5 million websites, and people on Facebook install 20 million apps every day such as games like Farmville.

There must be a lot of Farmville gratitude hiding behind that Facebook party. Oops, for the record, call it IPO!

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