If I look at the Facebook IPO purely as a product:
1) Very eagerly awaited by all investors (admit it, you have put in your limit order)
2) Super popular brand, 900+ billion users, addictive product
3) $100+ billion valuation, $4B revenue, 25% net profit, high growth, dominates social
4) Low costs, ~4K employees
5) Selling 421.2 million shares at $38 for a $104.2 billion market-cap, or 107 times trailing 12-month earnings
As a Product Manager managing the Facebook IPO, my goals are:
1) Manage demand (increase or even decrease the # of shares depending on whether I want to maximize initial revenue)
– There is always a secondary offering (release 2.0) with more features (voting rights :-))
2) Achieve the best price/share
Since the market is a voting machine (“like” machine) in the short-term, and based on the feedback from the Beta (IPO Roadshow), I should expect a pop (up).
Just raising the price/share or the # of shares (much like we have seen happen over the past few weeks) does
not bring the best returns to Facebook though it does cut into the profits at the underwriters.
Assuming that Facebook stock reaches $50 in the first months, then I would be leaving ~5B on the table. (421.2M * $50 – 421.2M – $38 = $21B – $16B). Granted, one won’t be able to sell millions of shares at the highest price without bringing the price down, but there are still more than a few billion more that can be profitably made. Even better – and I suspect that most companies don’t use this because they are too short-term focused and it’s a very risky for almost ALL companies – use a Dutch auction to gain the best value.
In this case, the downside can be controlled and (probably) limited, while the upside is at least a few billion (with a b). As a Product Manager, you are presented with such odds many times and you need to decide if you want to take it. In negotiations, I have always felt that I *may* have left money on the table and this is just one of those where it was a few billion 😉
Despite the fact that I have limit order for FB shares – it’s a momentous time like the Netscape IPO so you couldn’t keep me away from the action – I would not “like” it at this time (specially if you are a small investor)