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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

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.

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.