Business – Corporate Finance – IPO Facebook Facebook, Inc. is a global social networking company with 5,299 employees and more than 1.06 billion monthly active users on its web site: http://www.facebook.com. The company is one of the most modern sources of global communications, which clearly tapped into a highly lucrative and rapidly expanding market, with resulting high profitability, particularly commencing in 2009 and continuing; nevertheless, its IPO was marked with missteps, investor disappointments and numerous lawsuits. The stated intention of the IPO was to raise $5 billion. Due to considerable excitement, Facebook, Inc. eventually hoped to raise as much as $16 billion. On May 18, 2012, the stock first shot up to $45 but as the day progressed the stock price sank to $38.23 by closing bell. It continued to decline over the ensuing days. Due to alleged overvaluation and possible fraud, investors allegedly lost more than $40 billion and numerous lawsuits have been brought against the company and its underwriters.
Business -- Corporate Finance -- IPO Facebook
Provide a brief description of the company you chose, its main business and operational activities and a short synopsis of the main developments of the company over the past few years
Facebook, Inc. is a global social networking company building and employing tools and applications for communication among its users on computers and mobile devices. Incorporated in 2004, Facebook, Inc. has approximately 5,299 employees and more than 1.06 billion monthly active users on its web site: http://www.facebook.com. Its corporate headquarters are located in Menlo Park, CA and its corporate staff consists of: Mr. Mark Zuckerberg, Founder, Chairman and Chief Exec. Officer; Mr. David A. Ebersman, Chief Financial Officer; Ms. Sheryl K. Sandberg, Chief Operating Officer and Director; Mr. Michael Schroepfer, Chief Technology Officer and VP of Engineering; and Mr. David B. Fischer, VP of Marketing and Bus. Partnerships.
Facebook, Inc. is a publicly traded corporation with Index Memberships on the Nasdaq 100 and AMEX, listed in the Industry of Information Providers and the Sector of Technology. Effective October 18, 2013 at 7:59PM EDT, its Current Stock Price is $54.26. Its Sales/Revenue and Profitability (Net Income) are as follows, with all numbers in thousands:
Period Ending
Dec 31, 2012
Dec 31, 2011
Dec 31, 2010
Total Revenue
5,089,000
3,711,000
1,974,000
Cost of Revenue
1,364,000
860,000
493,000
Gross Profit
3,725,000
2,851,000
1,481,000
Operating Expenses
Research Development
1,399,000
388,000
144,000
Selling General and Administrative
1,788,000
707,000
305,000
Non-Recurring
Others
Total Operating Expenses
Operating Income or Loss
538,000
1,756,000
1,032,000
Income from Continuing Operations
Total Other Income/Expenses Net
7,000
(19,000)
(2,000)
Earnings Before Interest And Taxes
545,000
1,737,000
1,030,000
Interest Expense
51,000
42,000
22,000
Income Before Tax
494,000
1,695,000
1,008,000
Income Tax Expense
441,000
695,000
402,000
Minority Interest
(21,000)
(332,000)
(234,000)
Net Income From Continuing Ops
32,000
668,000
372,000
Non-recurring Events
Discontinued Operations
Extraordinary Items
Effect Of Accounting Changes
Other Items
Net Income
32,000
668,000
372,000
Preferred Stock And Other Adjustments
Net Income Applicable To Common Shares
32,000
668,000
372,000
(Yahoo, Inc., 2013)
Facebook, Inc.'s Total Assets, Total Liabilities and Owners' Equity for the past 3 years, with numbers all in thousands, follows:
Period Ending
Dec 31, 2012
Dec 31, 2011
Dec 31, 2010
Assets
Current Assets
Cash And Cash Equivalents
2,384,000
1,512,000
1,785,000
Short-Term Investments
7,242,000
2,396,000
Net Receivables
1,170,000
547,000
373,000
Inventory
Other Current Assets
471,000
149,000
88,000
Total Current Assets
11,267,000
4,604,000
2,246,000
Long-Term Investments
Property Plant and Equipment
2,391,000
1,475,000
574,000
Goodwill
Intangible Assets
1,388,000
162,000
96,000
Accumulated Amortization
Other Assets
57,000
90,000
74,000
Deferred Long-Term Asset Charges
Total Assets
15,103,000
6,331,000
2,990,000
Liabilities
Current Liabilities
Accounts Payable
488,000
359,000
166,000
Short/Current Long-Term Debt
534,000
450,000
181,000
Other Current Liabilities
30,000
90,000
42,000
Total Current Liabilities
1,052,000
899,000
389,000
Long-Term Debt
1,991,000
398,000
367,000
Other Liabilities
305,000
135,000
72,000
Deferred Long-Term Liability Charges
Minority Interest
Negative Goodwill
Total Liabilities
3,348,000
1,432,000
828,000
Stockholders' Equity
Misc Stocks Options Warrants
Redeemable Preferred Stock
Preferred Stock
615,000
615,000
Common Stock
Retained Earnings
1,659,000
1,606,000
606,000
Treasury Stock
Capital Surplus
10,094,000
2,684,000
947,000
Other Stockholder Equity
2,000
(6,000)
(6,000)
Total Stockholder Equity
11,755,000
4,899,000
2,162,000
Net Tangible Assets
10,367,000
4,737,000
2,066,000
(Yahoo, Inc., 2013)
2). Explain why you chose this company (e.g., what makes it interesting to you personally? Is it profitability of the company over the last three years or something else?). Keep in mind that one of the main goals of a for-profit corporation is the "maximization of shareholders' wealth."
Facebook, Inc. was chosen because of its notoriety and financial volatility. The company is one of the most modern sources of global communications, which clearly tapped into a highly lucrative and rapidly expanding market, with resulting high profitability, particularly commencing in 2009 and continuing (Forbes.com, LLC, 2013); nevertheless, its IPO was marked with missteps, investor disappointments and numerous lawsuits (Tsukayama, 2012). Facebook, Inc. is so pervasive in modern society that it maintains 11 offices in the United States and approximately 25 global offices in such disparate places as Amsterdam, Buenos Aires and Singapore (Facebook, Inc., 2013). As a result, Mark Zuckerberg, is found among Forbes Lists as follows: #20 of the 400 richest people in America; #66 of the richest people (read "billionaires") on the planet; and #25 on the list of the world's most powerful people (Forbes.com, LLC, 2013). Simultaneously, the company's IPO was so disappointing in some respects that it was referred to as "The Facebook Flop" (Temple, 2012). The disparity between the wide popularity and wealth of Facebook vs. The questionable results of its IPO is intriguing.
3). Find out what you can about your SLP company's IPO.
Facebook, Inc. began its Initial Public Offering (IPO) by filing its Registration Statement on the required S1 Form with the Securities and Exchange Commission (SEC) on February 1, 2012 (Facebook, Inc., 2012). The company's underwriters were Morgan Stanley, J.P. Morgan and Goldman, Sachs & Co. On the included Preliminary Prospectus, Facebook, Inc. claimed to have 845 million active monthly users and submitted the following Consolidated Balance Sheet:
As of December 31, 2011
Actual
Pro-Forma (1)
Pro Forma As
Adjusted (2)(3)
(in millions)
Consolidated Balance Sheet Data:
Cash, cash equivalents, and marketable securities
3,908
$3,908
Working capital
3,705
4,034
Property and equipment, net
1,475
1,475
Total assets
6,331
6,660
Total liabilities
1,432
1,432
Additional paid-in capital
2,684
4,267
Retained earnings
1,606
Total stockholders' equity
4,899
5,228
(Facebook, Inc., 2012)
Despite its very promising number of new memberships and valuation, Facebook, Inc. acknowledged that both income and the number of new memberships were slowing and would probably continue to do so (Facebook, Inc., 2012). The stated intention of the IPO was to raise $5 billion (Facebook, Inc., 2012). Due to considerable excitement over the IPO, Facebook, Inc.'s valuation increased after its initial filing, from $28 to $35 per share ($77 billion to $96 billion) in early May 2012 to $34 to $38 per share (up to $104 billion) in mid-May 2012, with the underwriters settling on $38 per share by day of trading (Oran & Barr, 2012). Slated to offer 421 million shares of stock for the May 18, 2012 first day of trading, Facebook, Inc. hoped to raise as much as $16 billion (Oran & Barr, 2012).
On May 18, 2012, the stock first shot up to $45 but as the day progressed the stock price sank and stayed above the IPO price only by the underwriters' buy-back of shares and by technical problems on the NASDAQ that reportedly prevented some investors from dumping their shares after the initial excitement. By closing bell, the stock was valued at a $38.23, which many characterized as discouraging after the initial excitement (De la Merced, 2012). Despite these disappointments, the stock traded on huge volume of 460 million shares and did raise the intended $16 billion (De la Merced, 2012). In the ensuing days, the stock price continued to sink, to $34.03 on May 21st, $31.00 on May 22, $27.72 by June 1st and $27.10 by June 6th (Tobak, 2012). In retrospect, many experts believed the company and its stock had been overvalued, resulting in the loss of over $40 billion to investors (Tobak, 2012) and numerous lawsuits against the company and its underwriters (Tsukayama, 2012).
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