Should users profit from Facebook's IPO?
So, who made money from Facebook shares? Certainly not the people that bought them, following the company's first day of trading. Young CEO Mark Zuckerberg listed the company on the NASDAQ stock exchange today, instantly creating a whole bunch of new millionaires–and also earning the banks some significant profits too.
Facebook didn't perform as well as analysts would have hoped. Generally, technology IPOs are expected to “pop" by a significant amount on the first day of trading, gaining value from their shares as people rush to buy. Facebook was a disappointment in that sense. It listed at $38 per share, which was on the high site of its estimated price. Its price to earnings ratio - which compares its market value to how much it actually earned - was also very high.
All of this scared investors off. Although prices fluctuated and 'popped' throughout the day, they ended up only 23 cents higher as of 4 PM in New York. Essentially Facebook ate up any potential growth in share price by pricing itself so highly.
The underwriters (the banks selling shares for Facebook) ended up buying back a bunch of shares to stop the stock from falling below the IPO price. The initial listing price is a psychological barrier; fall below that, and your company's IPO would be viewed very negatively indeed.
Still, it didn't stop Facebook attaining a $104.2 billion value on the market, which made a lot of people very rich. Zuckerberg himself walked away with $19 billion (and let's be fair to him - he earned it). Morgan Stanley, which led the syndicate of banks selling Facebook shares in the IPO, scooped $6.15 billion worth of shares. JP Morgan scored a cool $3.2 billion, while Goldman Sachs netted $2.4 billion.
Interestingly, Morgan Stanley borrowed $107 billion from the Federal Reserve during the financial crisis, just slightly more than Facebook's current market value. I wonder if it will use all the money that it made to help pay it back?
Of course, we are the real people that make all this money for Facebook. The company's value lies in the breadth of its user base, all of whom are supposed to click on advertisements on Facebook, and share everything that they do, to help the company show them better advertisements. Facebook is also able to tell which websites you visit and which things you like online, all of which helps it to monetise you as a user. There is even a tool available that tells you roughly how much money your Facebook data is worth. Apparently, I'm worth just over 300 bucks to the firm. This is not particularly comforting.
The bankers, the employees, even the Winklevoss twins who took Zuckerberg to court claiming that he stole their idea for Facebook – all of these people will make billions from the company's IPO. How much will you make as a user? Not very much at all apparently.
Is that right? Zuckerberg built the company, but we were the raw material. Should we expect something back?
Danny Bradbury, MSN Tech & Gadgets