It only takes three simple words to describe the global phenomenon that’s teaching a lot people the acronym IPO: "The Social Network." Investors from Wall Street and Main Street allike are converging on Facebook’s highly-anticipated initial public stock offering, even though Main Street will likely walk away empty handed -- at first, anyway.
A lot of people who don’t know or care much about the nuts and bolts of investments are, for whatever reason, fascinated with this. But being a fan of Facebook doesn’t mean you have to be a fan of the IPO, and realistically most people won’t get the chance to participate. The initial public offering, expected to happen Friday, could value the social media giant at more than $104 billion, based on its newest estimated share price of $34 to $38. That would make Facebook the biggest tech company to go public in U.S. history. Maybe that’s why the IPO is getting so many “likes”?
On the same note, that sky-high valuation has made skeptics out of a lot of industry experts and analysts who question Facebook’s ability to sustain the sales and growth the company experienced over its first eight years. Even with these doubts, many people wonder if Facebook will fare better than those who’ve come before it. What ever happened to all those other “over-hyped” Internet companies that were the big daddy IPOs of their time?
One close -- but still pretty far -- comparison to Facebook is the social-networking site LinkedIn, which went public in May 2011. If you got a piece of that cake, you’re probably patting yourself (or the responsible party) on the back. The stock more than doubled right out of the gate on its first day of trading, but then lost a third of its value over the month that followed. But recently, LinkedIn’s stock has been trading around 19% above its first-day closing price of $94.25, which was actually more than 109% higher than the $45 IPO price. LinkedIn closed at more than $113 on Wednesday.
While Facebook is expected to trade at more than 100 times its 2011 per-share earnings, LinkedIn went for more than 200 times its earnings for 2010, the year before the company went public. But size and scope of the two companies are barely comparable. The ‘Book has more than 900 million users across the globe, while LinkedIn had about 102 million at the time of its IPO. Facebook’s sales hit $3.7 billion last year, or 15 times LinkedIn’s total sales in 2010.
The daily deal was the latest and greatest of consumer fads as it quickly became the solution to all of our recession woes. Groupon jumped out front as the leader of the pack and seemed like a great deal for everybody. Struggling retailers got new customers, consumers got discounts and Groupon made money as the middle man. But as the competition ramped up and other factors like refund requests came into play, things weren’t looking so hot for investors.
Groupon went public in November of 2011 at a price of $20 a share. The stock quickly soared above $30, but after just six months was trading below $10 last week. Groupon closed at a little more than $12 on Wednesday.
Google was one a lot of people were waiting for, and it made a lot of people rich, despite the skepticism and hype surrounding its high valuation -- much like that hovering over Facebook.
And get this: The two companies’ high valuations at the time of their IPOs are comparable. Google started trading at about 120 times its earnings for the year before. But, where is Google now?
Google made its debut on the NASDAQ in 2004 at a price of $85 a share. Nearly eight years later, the stock soared way past $600 during trading on Thursday and closed at more than $628 the previous day. Another similarity: Google wasn’t satisfied watching other media start-ups like YouTube grow as quickly as it was. So Google bought the video-sharing site for $1.65 billion back in 2006. Wait, didn’t Facebook recently buy the photo app Instagram? Yes, yes, it did.
Just to note, Facebook has already blown Google out of the water in terms of revenue and market cap. FB’s revenue was 50% greater than Google’s was at the time of its offering back in 2004 and analysts expect The Social Network’s market cap to be as much as four times that of Google at its IPO.
“You’ve got mail.” We all know it and we all once loved the sound of it -- at least after the dial-up finally finished connecting. In 1992, the year America Online went public, the Wall Street Journal described the young company as “a provider of computer-based consumer services.” Sound familiar?
America Online closed at $14.75 on its first day of trading on March 19, 1992, and that now-seemingly small price was 28.3% higher than the original share price of $11.50. The young and innovative company did very well at first as a major player in the Internet bubble. But AOL quickly began losing subscribers and couldn’t keep up with other Internet companies in terms of generating revenue. After merging with Time Warner (HLN’s parent company) in 2000 and then splitting from Time Warner a decade later, AOL Inc. trades on the New York Stock Exchange and closed at just over $26 Wednesday.
Time to go way back! Before the once too familiar phrases like “Google it” or “You’ve got mail,” or “Friend him,” there was Netscape -- the original Silicon Valley start-up that introduced us to the World Wide Web. Netscape went public in August of 1995 and demand for the stock was so high that trading was delayed for almost two hours. Stock in Netscape was priced at $28 a share, soared to $75 on opening day and closed at $58. Netscape connected the world on a wider and faster scale than ever before. Usage of Netscape died down in the early 2000’s with the introduction of Internet Explorer and the company was later purchased by AOL.