Have you heard that Facebook will be going public next week?
Yes, some would say there is a veritable media circus revving up. I prefer to think of it as enthusiastic, exhaustive coverage of an event that to many minds marks the coming of age for social media.
Indeed, many investors are licking their chops at the prospect of biting into the social media sector in a big way. And Facebook is the mother of all social media outfits. Nearly a billion people use it, making it an attractive venue for advertising and marketing. Indeed it is already becoming a central component for many new marketing and business campaigns. And it is still growing.
Of course, that growth rate could level off quickly as the law of large numbers takes hold. And the same thing that makes Facebook attractive to marketers, it’s database of user information, could be rendered useless if users feel too much of their privacy is being given up for the sake of targeted ads. And the company (well, its CEO Mark Zuckerberg) has shown a propensity for doing what it wants, regardless of business norms.
So ultimately this could end up being a Horatio Alger triumph or a Greek tragedy. Either way works for people in my business. (You can find all of our Facebook coverage here)
So what to watch for? Well, this week is the road show phase, where company executives and investment bankers move around the country telling professional investor types about the company’s prospects.
The roadshow is aimed at getting a lot of these folks to say: “Yes, I want a piece of the action!” If you check out our coverage you’ll see that there has been some concern about the company’s haughtiness, but investors still seem pretty interested.
Then comes a few days of dickering about price. Facebook and its underwriters have already set a range of $28-35 a share. Usually the dickering is about where in that range the final tally price will fall. It’s has to be a price that will get a collection of investors and investor syndicates to buy up the entire offering, but also raise the kind of money the company is expecting. That’s a lot of negotiation and depending on how it goes, the schedule for the offering and even the price range itself could change. And, while some of the stock may get channeled to retail investors, the bulk of it will go to the big investment funds and institutions.
On Thursday, after the market closes, we’ll likely get the answer. It isn’t really “announced”; it’s just that every reporter on the story pings their investment banker contacts until the price is known.
Then comes Friday (if we’re still on schedule). The market will open and those investors that picked up Facebook stock in the offering can now turn around and trade that stock on the market. More than likely trading in Facebook won’t start right away. The bid and ask price between buyers and the initial sellers may take a little while to resolve.
In previous IPOs you’ve likely seen CNBC show footage of traders gathered around a station on the NYSE floor, waiting for the trading in the stock to begin. (You can almost hear them whispering “You go first” … “No, YOU go first”). Of course, you won't actually see that in this case since FB will trade on the Nasdaq.
Once trading begins if the price shoots up, it’s an indication that Facebook and its underwriters left money on the table. (See John Carney’s take)
Then Facebook becomes an ordinary stock, trading day in and day out, hopefully rising for most investors.
Unless it becomes a Greek tragedy.
You’ll catch it all on CNBC and CNBC.com. So park your favorites button here.