By Karen Aney (The Cascade) – Email
Print Edition: February 29, 2012
Most of us have it, and the ones that don’t are generally technophobes or holding out based on some inexplicable artistic stand. Or both. Yes, it’s Facebook, the social networking tool with enough range to inspire an academy award and incite the uncomfortable “what are we” conversation just a little too quickly. Soon, it’s going public.
Facebook has officially filed for an initial public offering (IPO), meaning it will soon be publically traded. Until now, founder Mark Zuckerberg and company have steered clear of the stock exchange and chosen to remain a private company. As a result, the vast majority of Facebook’s financial dealings have been kept secret.
The desire for relative secrecy has largely inspired the move to becoming a publically-traded company, based on multiple statements by Zuckerberg that he had no desire to ever go public. The reason for this is likely that once a company is publically traded, it is required to report exhaustive details of its workings to the Securities and Exchanges Commission (SEC) – the faction of the American government that controls its countries financial dealings. However, because Facebook now has over 500 shareholders, it is required to send these reports to the SEC anyway, despite the fact that they are currently private.
According to Section 12 of the SEC guidelines, the list Facebook would be required to report is pretty extensive. It starts with “the organization, financial structures, and nature of the business,” and goes on to cover every angle of the business including “any person directly or indirectly” involved with the issuer (Facebook). The company would also be required to compile information from its history: “balance sheets for not more than the three preceding fiscal years,” for example.
Because Facebook is now required to report this information to the SEC regardless of their trading status, going public will not alter current operations. However, Zuckerberg will now have a bevy of stockholders to answer to. Often, stockholders want to see most of the same information the SEC does. However, Facebook will not be legally obligated to report such information to them, and are able to present said information in a manner that highlights its strengths rather than its weaknesses.
Another benefit of the move to being publically traded is that it makes the stocks employees are given worth something – as the document filed to go public states, “allow us and our employees [to] obtain additional capital.” This makes Facebook an attractive potential employer in an increasingly competitive technological job market. The internet is now teeming with tales of graffiti artists who are now millionaires because they were paid in worthless stocks to paint an office wall eight years ago.
So what does the move mean for the user? Principally, it means that Facebook now has a lot more pressure on it to be profitable. From the same filing that states the company’s desire to raise capital, we know that 85 per cent of Facebook’s profit comes from advertising, and the remaining 15 per cent is from games. Furthermore, 12 per cent of that 15 comes from Zynga (the makers of Farmville). Facebook has over 800 million users, and according to the company’s filing to go public, half of these users return daily. According to the International Communications Union, approximately 32.7 per cent of the world’s population were internet users in 2011. Given that this means less than a third of the internet’s population are Facebook users, and factoring in youth and an aging population, this doesn’t leave much room for growth.
One large concern with the company that is being voiced by many investors is that Zuckerberg has a 58 per cent voting control over the company, maintaining full control of decisions made in the company. Though this could serve to reassure the typical Facebook user, his stake in the company currently amounts to approximately $15.8 billion, according to the IPO filing. Therefore, he stands to gain much from selling his controlling interest.
The stock will be publically traded as early as April. However, analysts are expecting that an initial boom in purchase will price the stock out of most individuals’ portfolios. Instead, look to those groups that have an existing investment in Facebook. The largest of these is The Media & Telecommunications Fund (which trades under PRMTX). They own about one per cent of Facebook’s total assets, which amounts to $1.9 billion dollars, and serve to profit if Facebook does.
