The $16 billion juggernaut called Facebook’s IPO is coming Friday, and no financial event has been so hotly anticipated as Wall Street scrutinizes it all, from ad growth to Mark Zuckerberg’s hoodie, while CNBC offers special programming and a dedicated Web page. Handicapping the stock its first day out is a national sport right now; a major question is where the cash to buy it will come from.
Wall Street and industry players mostly expect investors to unload shares of Google and other Netcos to free up cash for millions of new Facebook shares. But the IPO could also ripple into traditional media as fund managers shed the old to make way for the new.
“It’s a $10 billion offering. Do investors have that in excess cash, or will they be selling other media stocks to buy Facebook?” said media analyst Alan Gould of Evercore Partners. “The closest comparison is Google. But could it have an impact on a News Corp. or Disney? The big, long-term question is a continuation of the (ad) trend… Will advertisers be shifting from traditional media to online and then to social?”
BTIG’s Richard Greenfield said, “I would expect a wide range of companies have been sold to make room for Facebook.”
Facebook stock will be priced Thursday afternoon and start trading Friday morning on the Nasdaq under the symbol FB. The price range was recently raised to between $34 and $38 a share and the number of shares for sale hiked to 421 million. The IPO could generate $16 billion and value Facebook at $104 billion, making for the third biggest IPO in history after Visa and General Motors and dwarfing the $2 billion raised by Google’s IPO in 2004, the year Facebook was launched.
Founder Mark Zuckerberg, who just turned 28 and offended some investors by wearing a hoodie to roadshow presentations in recent weeks, will own 56% of the company that he started from his Harvard dorm room. He will be one of the richest people in the world. His wealth will grow alongside Facebook’s stock.
Evercore tech analyst Ken Senna said Facebook “is on course to be the most valuable media company in existence.”
The company’s rise has been meteoric. It takes in about $4 billion in advertising a year, although that’s slowed in recent months, and it’s had a tough time making money from the increasing number of users who access the social network on mobile devices. The question on the Street is how Facebook will turn its massive reach of over 900 million average monthly users worldwide into a steadily growing stream of cash.
In a public relations headache just ahead of the IPO, General Motors said it plans to pull its roughly $10 million in annual ad spending on Facebook after a routine review, meaning it didn’t think the ads were working.
“From a long-term structural standpoint, there will be those who believe FB will grow at the expense of TV. If you believe that and are willing to take the long-term view, you might buy FB and sell large cap media,” said Todd Juenger of Bernstein Research. “I am not one who believes that. And those who do will have to be willing to wait years, with lots of potential ups and downs for their theory to play out,” he added.
Execs at big media companies, which have been struggling to define their place in the online world but see its huge potential, view digital giants as both friend and foe. Most were reluctant to comment on the Facebook IPO, saying they didn’t want to steal Facebook’s thunder on its big day or were uncomfortable since their companies work with the site in various ways.
Danielle De Palma, senior VP of digital marketing for Lionsgate, said the studio has a “great partnership with Facebook,” which it uses to connect with fans, market films and TV shows, stream new releases and for social gaming. It teamed with the site to particular advantage with blockbuster “The Hunger Games,” and De Palma said the pic’s Facebook game has over a million installations. “The more effectively we reach our audience, the happier we are,” she said.
Greenfield said most advertisers are only starting to learn how to harness the power of Facebook. “They need to become publishers of content themselves and utilize all the Web has to offer… and continually iterate the campaign to consumers.” He said Facebook’s advertising remains at an early stage but is “in an unparalleled position to capture a meaningful share of the $400 billion-plus global advertising market.”
Just how marketers are allocating dollars to new media is a hotter topic this spring than ever before. Digital companies held their first coordinated upfront presentations for advertisers in April and May, and the traditional broadcast and cable upfronts are in full swing this week.
The IPO could change the media biz in other ways: It will give Facebook a powerful currency to continue a string of acquisitions. It will also create hundreds of new twentysomething multimillionaires who may have cash to burn in the sector.
“You have another big company squeezing its way in,” said one media fund manager. As a so-called value investor, he’s not buying Facebook, which he calls an amazing phenomenon but too risky at the price it wants.
Another showbiz investor thinks traditional media holdings “could be pared back” to make room for Facebook, although his firm is also sitting out the IPO.
But thousands of others are sure to be glued to CNBC’s “Facebook: The Social Offering Is Here” starting at 1 p.m. ET Thursday. Given the company’s iconic status in popular culture and hundreds millions of fans, it may also see a swell of interest from individual investors, including ones who don’t own stock and have never heard of an IPO.
San Francisco company GiveAShare.com, whose site sells single shares complete with stock certificate, has been running a banner ad simply declaring, “It’s Coming!”