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Facebook IPO: Why now?

  • Buzz surrounds Facebook's initial public offering on Friday
  • S.E.C. rule may have pushed the company toward the IPO
  • Company could make as much as $16 billion
Facebook IPO: Why now?

Unless you’ve buried your head in the sand and then pulled a rock over it, you know the “who,” “what,” and “when”: Facebook is going public Friday. Where? The NASDAQ stock exchange, if you missed that bit. Now, for the “why.”

The company has given us plenty of time to prepare for this. Last May, Chief Operating Officer Sheryl Sandberg called an initial public offering “inevitable.” In February, Facebook filed paperwork for the IPO. But it’s getting real this week.

Heavy buzz surrounds the timing, befitting a company that thrives on rapid and copious information sharing: Monday was founder Mark Zuckerberg’s 28th birthday, co-founder Eduardo Saverin has renounced his U.S. citizenship, Facebook recently purchased the Instagram app and launched a new “App Center.” So there’s all that. But why now?

Why not now?

Some say an S.E.C. technicality pushed the social network into going public. Once a private company with at least $10 million in assets has 500 shareholders, it has to start reporting financial information to the Securities and Exchange Commission. A company doesn’t have to go public along at this threshold, but the theory is: Once it’s regulated like it’s public, the company might as well make it official and raise some money from it.

Money in the bank

The “FB” symbol on the NASDAQ ticker goes hand-in-hand with another symbol: the dollar sign. Facebook could raise as much as $16 billion when it goes public. That number has kept creeping higher this week. On Wednesday, Facebook announced that it would sell an extra 25% of shares. It’s selling those coveted shares at $34 to $38 bucks a pop, boosting the company’s market value to more than $104 billion.  Zuckerberg and friends can stockpile that cash and put it toward doing what successful companies do best, like expanding, innovating, and creating more ways to make money.

IPO overdue?

In its S.E.C. filing, Facebook said that ads made up 85% of its revenue last year. Ad sales slowed in the first quarter of this year, which the company blamed on seasonal trends. But, some advertisers are also questioning whether Facebook ads are effective. General Motors recently divulged it’s pulling about $10 million of paid ads from the site, according the Wall Street Journal.

Ad effectiveness aside, the number of people on the planet is finite, and with 901 million active users already, Facebook is bound to see a plateau eventually in people who see those ads. Plus, the number of mobile Facebook users has been growing, and Facebook hasn’t found a way to capitalize on that yet. The IPO money could help the company with new revenue strategies, which some say are overdue.

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