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Facebook was pushing really, really hard for a higher IPO. Why? Why would the company WANT to sell off at 50, 100, or 150 price per earnings, higher and highe

Facebook was pushing really, really hard for a higher IPO. Why? Why would the company WANT to sell off at 50, 100, or 150 price per earnings, higher and higher? This is setting unrealistic expectations and setting themselves up for failure. Does anyone know? I have one theory: they need the money. Perhaps Facebook has some really audacious plans that it is confident in, and simply needs that many bilion dollars to do it (and even more). From their execution on their audatious plans to date, this would be not be out of character, nor would I completely lack faith in their ability to do so. Any other ideas? I mean, at the end of the day, wouldn't you rather have a billion in the bank after IPO-ing at 25 price per earnings and ending up fizzling, than have 3 billion in the bank after pushing really, really hard to IPO at 75 price per earnings and ending up fizzling? Personally, 1 billion is the same as 3 billion to me, but the latter scenario is not very pleasant, including plenty of possible lawsuits, etc. It's a lot easier to fault and deride a company in the latter scenario if it doesn't quite live up to expectations...

Loic 14y ago
An IPO is firstly here to make money for the company. FB masterly made the maximum money they could, they sold as high as possible. It was a perfect IPO for FB. Nothing more.
- its_so_on 14y ago
  I don't know. I'm pretty sure they wouldn't have wanted to raise $100billion. What would they do with it except buy back stock after a crash? Apple can't think of any use for their $100b in cash, and they're a hardware company with sprawling operations on three continent, and a capital-intensive retail division on four! (They're doing buybacks and dividends with their cash.) By contrast, the amount FB actually raised, which is considerably less than that, they're acting like they need or have good use for. This is just a theory, of course, and perhaps you are right that Facebook would have been HAPPY to raise a hundred billion dollars it has no use for. (Perhaps as part of stock dumping by big shareholders, who don't care what happens after this.) The above is just a guess. But I want to repeat my reason for it, which is that I have been extremely impressed by the expansiveness of Facebook's vision to date, and its execution on it. If they do have something big in mind, it's not unprecedented for them to be able to execute on it; I have some faith in their ability to do so, versus lots of other companies that suddenly realize they can think a lot bigger now that they have all this cash, but have no record of doing so. We'll find out if there's anything like this that Facebook has in mind soon enough...
damoncali 14y ago
From Facebook's perspective, they are at the end of a golden period where they are being judged by their potential rather than their results. That is a powerful thing, and probably the reason they overreached. Eventually, people will decide that 25x sales is insane, and they just won't be worth as much. So the obvious answer is cash. More is better, and they only get one shot at being the unlimited golden boy. But there are a couple limits to this reasoning. First, you can only use so much cash - Apple, for example, is having some issue with this. I don't think Facebook will have trouble deploying what they raised, though, so this isn't really an issue. You also want to maintain a good working relationship with Wall St. What happens when Facebook tries to raise another round in the public markets? And what about current employees? If they watch their shares decline by 50% before they can sell, it's bad for morale.
- damoncali 14y ago
  Edit: I forgot one other big problem: Acquisitions. Instagram, it was reported, was a largely stock deal (for example). Having to offer more stock or more cash in future acquisitions is a definite downer for Facebook.
  - its_so_on 14y ago
    (that doesn't work if the price goes back down though, so it can't be a good reason for Facebook to try it's hardest for a much, much higher IPO than bankers wanted.)
    - damoncali 14y ago
      That's what I mean. Facebook doesn't want declining stock when they make stock based acquisitions.
      - its_so_on 14y ago
        Oh okay, didn't realize you meant it as "another limit to the reasoning". Makes sense. (Although if they know exactly how many acquisitions they plan, they can just sell at the all-time high price now, keeping the money for the acquisitions, instead of selling somewhat lower so that they can use stock with confidence built into it later. But, if they don't know this, and you would expect they wouldn't, then the latter strategy would have more merit). So, I agree with you if you meant this is another limit to wanting to sell as high as possible in the IPO, decline or no decline thereafter.
vezycash 14y ago
if fb finds a way to milk more cash through its service, people would go into a buying frenzy.. but that's a big IF.

Loic 14y ago

An IPO is firstly here to make money for the company. FB masterly made the maximum money they could, they sold as high as possible. It was a perfect IPO for FB. Nothing more.

its_so_on 14y ago
I don't know. I'm pretty sure they wouldn't have wanted to raise $100billion. What would they do with it except buy back stock after a crash? Apple can't think of any use for their $100b in cash, and they're a hardware company with sprawling operations on three continent, and a capital-intensive retail division on four! (They're doing buybacks and dividends with their cash.) By contrast, the amount FB actually raised, which is considerably less than that, they're acting like they need or have good use for. This is just a theory, of course, and perhaps you are right that Facebook would have been HAPPY to raise a hundred billion dollars it has no use for. (Perhaps as part of stock dumping by big shareholders, who don't care what happens after this.) The above is just a guess. But I want to repeat my reason for it, which is that I have been extremely impressed by the expansiveness of Facebook's vision to date, and its execution on it. If they do have something big in mind, it's not unprecedented for them to be able to execute on it; I have some faith in their ability to do so, versus lots of other companies that suddenly realize they can think a lot bigger now that they have all this cash, but have no record of doing so. We'll find out if there's anything like this that Facebook has in mind soon enough...

damoncali 14y ago

From Facebook's perspective, they are at the end of a golden period where they are being judged by their potential rather than their results. That is a powerful thing, and probably the reason they overreached. Eventually, people will decide that 25x sales is insane, and they just won't be worth as much. So the obvious answer is cash. More is better, and they only get one shot at being the unlimited golden boy. But there are a couple limits to this reasoning. First, you can only use so much cash - Apple, for example, is having some issue with this. I don't think Facebook will have trouble deploying what they raised, though, so this isn't really an issue. You also want to maintain a good working relationship with Wall St. What happens when Facebook tries to raise another round in the public markets? And what about current employees? If they watch their shares decline by 50% before they can sell, it's bad for morale.

damoncali 14y ago
Edit: I forgot one other big problem: Acquisitions. Instagram, it was reported, was a largely stock deal (for example). Having to offer more stock or more cash in future acquisitions is a definite downer for Facebook.
- its_so_on 14y ago
  (that doesn't work if the price goes back down though, so it can't be a good reason for Facebook to try it's hardest for a much, much higher IPO than bankers wanted.)
  - damoncali 14y ago
    That's what I mean. Facebook doesn't want declining stock when they make stock based acquisitions.
    - its_so_on 14y ago
      Oh okay, didn't realize you meant it as "another limit to the reasoning". Makes sense. (Although if they know exactly how many acquisitions they plan, they can just sell at the all-time high price now, keeping the money for the acquisitions, instead of selling somewhat lower so that they can use stock with confidence built into it later. But, if they don't know this, and you would expect they wouldn't, then the latter strategy would have more merit). So, I agree with you if you meant this is another limit to wanting to sell as high as possible in the IPO, decline or no decline thereafter.

vezycash 14y ago

if fb finds a way to milk more cash through its service, people would go into a buying frenzy.. but that's a big IF.