6 ms·

So, if I understand you correctly, the owners' goal is to set the IPO price as high as possible and then to hell with the future stock price? I was always under

by jan_g 14y ago

So, if I understand you correctly, the owners' goal is to set the IPO price as high as possible and then to hell with the future stock price? I was always under the impression that the owners' goal is long-term growth of stock value, but of course I'm not an economist ...

nikcub 14y ago
no different to raising a Series A or B. Facebook have so much cash now that they will likely never go back to the market again. They raised an extraordinary amount of money at a very large valuation. They also have over 50% of voting control with one person so don't need to really deal with shareholders. The only single downside is employee option values and incentive packages. Edit: to add to that, there is also a strong school of thought amongst investors that companies and CEO's who track daily, monthly, quarterly etc. stock fluctuations (ie. short term) are a lot less effective than those who ignore the short-term movements. Facebook said as much in their S1, and Zuck in his letter, that he won't be following the stock or dealing with the market, but will rather focus on building the company long-term.
- jan_g 14y ago
  >to add to that, there is also a strong school of thought amongst investors that companies and CEO's who track daily, monthly, quarterly etc. stock fluctuations (ie. short term) are a lot less effective than those who ignore the short-term movements. Facebook said as much in their S1, and Zuck in his letter, that he won't be following the stock or dealing with the market, but will rather focus on building the company long-term. Yes, this is much closer to my thinking and that's why I called you out on your argument.
  - nikcub 14y ago
    to clarify, he only doesn't care about the price after he has sold billions of dollars worth of stock. until Friday, he definitely cared (to the point of borrowing money to buy a house so he wouldn't have to sell an extra share).
glesica 14y ago
The owner(s) of the company only gets paid at the IPO. That's the only time he gets money from the stock market (unless and until the company issues more stock later). So of course he wants the IPO price to be as high as possible, because that's the money he gets to put in his piggy bank. In fact, the real goal of a public company is not to increase the stock price, but to maximize the value of the stock to shareholders. In some cases, this means maintaining a flat stock price but paying healthy dividends (in other words, giving some of the profits to the shareholders). This was actually the dominant model for many years (link below, take a look at the growth rate during the '70s and '80s). The somewhat more recent trend toward increasing share prices is just another way of maximizing shareholder value. In this case, it is done by increasing the market value of the stock being held by the shareholders. It is quite common for companies today to pay no dividends. Since the shareholders don't get a piece of the profits, the only way to make money on the stock is to buy low and sell high (or buy low and hold for awhile, perhaps until retirement, and then sell, however you want to look at it). So there really isn't any intrinsic reason for a company to seek a higher stock price. The point is to maximize value, which doesn't always equate to price. Of course that isn't going to cheer up people who hoped to buy FB on Friday and flip it for a huge profit this week after the "bump". But risk is the whole reason there's money to be made. Sometimes you win, sometimes you don't. http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1337630400000&chddm=4050760&chls=IntervalBasedLine&q=INDEXDJX:.DJI&ntsp=0 http://www.google.com/finance?chdnp=1&chdd=1&chds=1&...
- jan_g 14y ago
  Ok, I'm obviously over-simplifying the situation, but I have hard time believing that stock price doesn't matter. If nothing else, then downward trend would generate lots of negative press and customers might turn away from the company's products/services. Imagine if Google's stock price would decline significantly in the period of next year or two - wouldn't that spell doom and gloom in people's eyes? Disclaimer: I have never invested in any company, never bought any stock, so you may call me naive.
  - glesica 14y ago
    That's true, to a point. If Google's stock price fell off a cliff tomorrow it would be all over the news and their customers (advertisers) might have some questions. But there are two things to keep in mind: 1) If their stock price fell off a cliff, there's got to be a reason. It could be basically anything, but it has to exist and be well-known (maybe Larry Page had a breakdown, shaved his head and tried to run down some reporters, whatever). The event that caused stockholders to sell (thus crashing the stock) probably would have been enough to cause Google's customers to ask questions, the stock price is then just incidental. It's a "chicken and egg" problem in some sense. 2) Stock price really doesn't have any impact on the everyday functioning of an otherwise-healthy company. Stock price is a reflection of the buying and selling happening on the stock market, so fluctuations in price can actually have nothing to do with the current health of the company in question. Maybe tomorrow a report comes out that indicates search-based advertising will start to decline next year and will be half what is today in 2020. This would likely lead to a decrease in Google's stock price. But it probably wouldn't lead to many companies dumping Adsense, at least not yet. A report about the future affects the stock price, but it doesn't necessarily affect the customers today. Stock prices are abstract and largely disconnected from the actual company. So while a good CEO will pay attention to the stock price, it just isn't all that important for most (especially mature) companies. Building a healthy business is the important part.

by jan_g 14y ago

nikcub 14y ago

no different to raising a Series A or B. Facebook have so much cash now that they will likely never go back to the market again. They raised an extraordinary amount of money at a very large valuation. They also have over 50% of voting control with one person so don't need to really deal with shareholders. The only single downside is employee option values and incentive packages. Edit: to add to that, there is also a strong school of thought amongst investors that companies and CEO's who track daily, monthly, quarterly etc. stock fluctuations (ie. short term) are a lot less effective than those who ignore the short-term movements. Facebook said as much in their S1, and Zuck in his letter, that he won't be following the stock or dealing with the market, but will rather focus on building the company long-term.

jan_g 14y ago
>to add to that, there is also a strong school of thought amongst investors that companies and CEO's who track daily, monthly, quarterly etc. stock fluctuations (ie. short term) are a lot less effective than those who ignore the short-term movements. Facebook said as much in their S1, and Zuck in his letter, that he won't be following the stock or dealing with the market, but will rather focus on building the company long-term. Yes, this is much closer to my thinking and that's why I called you out on your argument.
- nikcub 14y ago
  to clarify, he only doesn't care about the price after he has sold billions of dollars worth of stock. until Friday, he definitely cared (to the point of borrowing money to buy a house so he wouldn't have to sell an extra share).

glesica 14y ago

The owner(s) of the company only gets paid at the IPO. That's the only time he gets money from the stock market (unless and until the company issues more stock later). So of course he wants the IPO price to be as high as possible, because that's the money he gets to put in his piggy bank. In fact, the real goal of a public company is not to increase the stock price, but to maximize the value of the stock to shareholders. In some cases, this means maintaining a flat stock price but paying healthy dividends (in other words, giving some of the profits to the shareholders). This was actually the dominant model for many years (link below, take a look at the growth rate during the '70s and '80s). The somewhat more recent trend toward increasing share prices is just another way of maximizing shareholder value. In this case, it is done by increasing the market value of the stock being held by the shareholders. It is quite common for companies today to pay no dividends. Since the shareholders don't get a piece of the profits, the only way to make money on the stock is to buy low and sell high (or buy low and hold for awhile, perhaps until retirement, and then sell, however you want to look at it). So there really isn't any intrinsic reason for a company to seek a higher stock price. The point is to maximize value, which doesn't always equate to price. Of course that isn't going to cheer up people who hoped to buy FB on Friday and flip it for a huge profit this week after the "bump". But risk is the whole reason there's money to be made. Sometimes you win, sometimes you don't. http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1337630400000&chddm=4050760&chls=IntervalBasedLine&q=INDEXDJX:.DJI&ntsp=0 http://www.google.com/finance?chdnp=1&chdd=1&chds=1&...

jan_g 14y ago
Ok, I'm obviously over-simplifying the situation, but I have hard time believing that stock price doesn't matter. If nothing else, then downward trend would generate lots of negative press and customers might turn away from the company's products/services. Imagine if Google's stock price would decline significantly in the period of next year or two - wouldn't that spell doom and gloom in people's eyes? Disclaimer: I have never invested in any company, never bought any stock, so you may call me naive.
- glesica 14y ago
  That's true, to a point. If Google's stock price fell off a cliff tomorrow it would be all over the news and their customers (advertisers) might have some questions. But there are two things to keep in mind: 1) If their stock price fell off a cliff, there's got to be a reason. It could be basically anything, but it has to exist and be well-known (maybe Larry Page had a breakdown, shaved his head and tried to run down some reporters, whatever). The event that caused stockholders to sell (thus crashing the stock) probably would have been enough to cause Google's customers to ask questions, the stock price is then just incidental. It's a "chicken and egg" problem in some sense. 2) Stock price really doesn't have any impact on the everyday functioning of an otherwise-healthy company. Stock price is a reflection of the buying and selling happening on the stock market, so fluctuations in price can actually have nothing to do with the current health of the company in question. Maybe tomorrow a report comes out that indicates search-based advertising will start to decline next year and will be half what is today in 2020. This would likely lead to a decrease in Google's stock price. But it probably wouldn't lead to many companies dumping Adsense, at least not yet. A report about the future affects the stock price, but it doesn't necessarily affect the customers today. Stock prices are abstract and largely disconnected from the actual company. So while a good CEO will pay attention to the stock price, it just isn't all that important for most (especially mature) companies. Building a healthy business is the important part.