By David Glenn Cox
Question- What are the advantages and disadvantages for a company going public?
Answer- " An
initial public offering (IPO) is the first sale of stock by a company.
Small companies looking to further the growth of their company often use
an IPO as a way to generate the capital needed to expand. Although
further expansion is a benefit to the company, there are both advantages
and disadvantages that arise when a company goes public."
On Friday, Facebook will have its Initial Public Stock Offering; The Company had over a billion dollars in profits last year and sits atop $3.5 billion in cash reserves, so what could Facebook need with mega billions in new cash? Unlike the old brick and mortar companies Facebook's product is built on bandwidth, and its revenues are electronic advertising. It cannot improve its market share because it already rules the market. Why is it then, the company is so desirous of all these new billions of dollars?
Answer- "Subsequently this may lead to an increase in market share for the company. An IPO also may be used by founding individuals as an exit strategy. Many venture capitalists have used IPOs to cash in on successful companies that they helped start-up. - From Investopedia
Facebook cannot improve its market share because it already rules the market. It would appear that the Facebook IPO nothing more than a payday for investors, not a beginning for a company, but an end. Facebook cofounder Eduardo Saverin, renounced his US citizenship the other day, in order to save $67 million dollars of potential tax liability. Founder Mark Zuckerberg, is the largest shareholder with a controlling interest of 28.4 percent of common stock. Zuckerberg's personal fortune is currently estimated at $17.5 billion, why then does he or any of his partners need with more new money?
Could this possibly be the right time then, to cash out? Could this be the right time to pick up their check, to reinvest it, in what? Our economy is in a prolonged drizzle, a permanent funk called the "new normal." A general consensus of the public opinion would agree the affairs of Wall Street are out of control. Could it be the IPO is more designed to buoy the market than to enrich its individual investors? Could it be a poker game, where once the winners take all the money out of the game, they must find new money to sustain the game?
There is another component to this which makes Facebook somewhat a different animal from your average, run of the mill internet corporation. Facebook's true product is information, information culled by you, about you. This vast archive of public "likes" and "dislikes" is about to become the property of Wall Street investors. The Orwellian ideas of clicking "likes" or "dislikes," of Coke or Pepsi, Preparation H or Depends diapers boggles the mind. Centuries of intellectual evolutionary development synthesized down to twenty first century electronic cave wall scratchings of "I like plastic underpants."
I have my own Facebook account and it has put me in touch with people whom I haven't spoken to since childhood. It can be a wonderful tool, what is to fear is what the historical record of inventions which have changed the world teaches us. Gunpowder once changed the world, initially; it was used to fuel beautiful Chinese fireworks before becoming the scourge of mankind. The Wright Brothers invented an airplane fulfilling the age old dream of mankind. In less than fifty years, that dream of mankind became a nightmare war machine bristling with weaponry and carrying tons of bombs. So what then, might become of an information collecting machine changing the world, manipulated by Wall Street investors running amok? Not that it will happen, mind you, only that it could happen.
Fortunately, we have the dinosaur principle that would probably save us, huge dinosaurs once roamed the Earth and regardless of their size, they all shared basically the same brain capacity. Growing larger and larger only made the dinosaur slower, a lumbering behemoth endlessly searching for tons of food to maintain a brain about the size of a walnut. More than likely though, the asteroid on the horizon which will draw a curtain to the Facebook era is what I call, the Mom principle. Most of Facebook's primary users are young, will they continue to hang out where Mom might be listening? Do they really want their Mom to ask, "What's a beer bong?"
I suppose it could be just as rightly be called the MTV principle, Facebook's loyal customer base will eventually grow up, leaving the door wide open for a new Internet competitor appealing to a younger rising generation. A new Facebook, cooler and hipper than the old Facebook, with cooler features because "like" is so something my Mom does. A new Facebook, so cool that Mom doesn't even know about it yet. Popular music is aimed primarily at teenagers, films and TV aimed primarily teenagers, and the one consistency about teenagers is that, whatever is considered so cool today, will be so uncool tomorrow. Look at the mass migration of youth from My Space to Facebook; clearly we have reached the age of the impermanence of permanence.
The Facebook IPO will rake in billions and billions of dollars from the eager hands of investors who can't give their money away fast enough, at the exact same moment when the founders are filling their suitcases and cashing out. The market will rise on the day of this IPO generating money making potential from affiliated companies, filling brokers pockets with commissions and generating a new public interest, even if only temporarily in investing. All to try to catch a falling star or a ride on a comet's tail, investment as a gold rush rather than as a responsible business opportunity.