So what’s in it for me?
If you are an investor, what you get in exchange for giving your capital to a company is a portion of that company and any of the future earnings it makes. The more money the company you invest in makes (and keeps) the more your shares should be worth. Investing in an IPO like Facebook is particularly difficult because nobody is really sure they (Facebook) can make (and keep) as much money as the stock price would suggest.
For the moment there’s a lot of uncertainty and a great deal of expectation – and that is “normal” for many companies that become publicly traded. It is also a very volatile combination. What the dot-com bubble showed us in the late 1990’s is that expectations can skew stock prices, but ultimately whether a company can make (and keep) its money will be the most important test for deep-pocketed investors. The Facebook IPO also showed us that despite all the hype, its opening price of $42+ was perhaps too high too soon for the overall market to be willing to pay. What something is worth is really only knowable by what a market for that thing is willing to pay for it.
Cash burning a hole in your pocket?
For Facebook the company though, the ‘middle-man’ (a company called Morgan Stanley) that helped fetch them that high IPO price did a good job of getting as much money as they possibly could for their shares (Morgan Stanley and other underwriters made about $100 million from bringing Facebook public). Facebook owner Mark Zuckerberg must have definitely made it a point to “like” Morgan Stanley’s Facebook page for helping Facebook the company become a $100 billion (its worth less at the writing of this article) company. With its hefty war chest, Facebook can spend what it thinks it needs in order to fulfill its lofty business vision. Of course, whether or not they spend it wisely is an entirely different matter.
To read the last article in the Facebook IP-Uh-Oh series, click here.
Some more interesting links about the Facebook IPO are provided below:
And here is a quick definition of an IPO from Investopedia.