Facebook’s IPOClick on this video link to get some background information on the Facebook IPO.

http://online.wsj.com/video/facebook-eyes-2q-2012-for-100-billion-ipo/8CC0E866-A903-4C1D-A194-98544BC1CC58.html

Facebook’s IPOIs an IPO a good investment? Not always. This graph shows that companies like Google and Amazon were good investments, but they are often the exception rather than the rule.

http://public.tableausoftware.com/views/WEBIPO1111/MKTCAP?amp;:tabs=no&:embed=yes&:toolbar=yes&:toolbar=yes

What Is an IPO?

What Is an IPO?When a company decides to go public, it basically sells a part of itself to a bank or group of banks. In exchange the company gets investment capital ($$$).

What Is an IPO?The part of the company owed by the investment bank is sold as smaller fractional shares of the company.

What Is an IPO?The Initial Public Offering (IPO) refers to the first sale of these shares of stock.

What Is an IPO?The usual customers that purchase IPO stocks are institutional investors, other banks and firms, who buy large blocks of stocks. Those institutions, in turn, sell the shares to individuals.

Let’s look at an IPO scenario…

Let’s look at an IPO scenario…Let’s say that Facebook is valued at $100 billion.

What Is an IPO?Facebook wants to raise $10 billion dollars in capital investment. So, the investment bank gets a 10% stake in Facebook.

What Is an IPO?The investment bank, working with Facebook, decide that an IPO stock price of $35 per share would be an ideal starting price. How many shares need to be issued?

Let’s look at an IPO scenario…The result is about 286 million shares. This may seem like a lot of shares, but keep in mind that Facebook has over 500 million users. On average, each Facebook user would need to buy 2 shares!

Facebook’s IPOLooking at the IPO chart shown previously, you’ll see that stock prices for IPOs have a characteristic shape.

http://public.tableausoftware.com/views/WEBIPO1111/MKTCAP?amp;:tabs=no&:embed=yes&:toolbar=yes&:toolbar=yes

Facebook’s IPOThis graph shows the typical behavior for IPO stocks for profitable companies (like Google) and unprofitable companies (like Webvan). Notice that in both cases there is an initial bump in the price of the stock.

Facebook’s IPOIt’s during this period that the investment bank makes a profit on its shares of stock. All shares sold during this period are sold at a profit.

Facebook’s IPOLong-term both the investment bank and individual investors will make money from their shares ONLY IF the company is profitable.

Do you think Facebook willbe profitable?