Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.
Facebook, which operates the social media platform everyone knows (845 million users), recently took one of the final steps toward going public. Once they “go public” anyone with a brokerage account will be able buy shares of the company. On Wednesday the company filed a Form S-1, which provides potential investors with basic business and financial information about Facebook. The S-1 filing signals shares will likely be offered to the public sometime in the next few months.
A close reading of the S-1 will give you much of what you need to know to make an informed decision about investing in Facebook — how much revenue it generates, operating costs, profit margins, growth expectations, etc.
But don’t get too excited just yet by the prospect of going into business with Facebook whiz-kid founder Mark Zuckerberg. Before Facebook launches its Initial Public Offering (IPO) and starts trading publicly, shares of the company will be offered to the largest, wealthiest (and sometimes, most famous) clients of the investment banking firms handling the IPO, including Morgan Stanley, J.P. Morgan and Goldman Sachs.
Going public could give Facebook a market value up to $100 billion, and raise a $10 billion war chest for the company. That would dwarf the $1.9 billion that Google raised with its 2004 IPO. Zuckerberg, who started the company in his Harvard dorm room in 2004, could be worth $28 billion in the wake of the IPO.
Facebook will use the cash infusion to build on what has already been incredible growth. The company will undoubtedly hire more programmers, network engineers, software engineers, security experts, marketing experts, graphic interface designers, project managers and advertising sales reps in an effort to further dominate its current market, and perhaps explore others.
It’s all very promising.
However, I suggest you remain cautious about jumping into this one. You may want to give the stock a few months to find a level reflective of both the company’s future promise and the challenges it faces. Costs are increasing, and one expert told the Wall Street Journal that Facebook’s recent ad sales revenue was actually “disappointing.” Social media experts wonder if we’re in a Facebook “user bubble” that could burst as people get bored and move onto to other platforms. And Zuckerberg himself worries about protecting Facebook’s culture in the wake of the IPO, which will turn many of the company’s key players into multi-millionaires.
What are your thoughts on investing in Facebook? Do you plan to jump on the IPO?
– By Wes Moss, for Atlanta Bargain Hunter