Posted on 16 May 2012.
The Facebook Initial Public Offering (IPO) that is scheduled to occur during the week of May 18, 2012, will be the biggest IPO of 2012. The Facebook IPO is known as the FB IPO for short, since “FB” will be Facebook’s stock trading symbol on NASDAQ upon completion of the FB IPO.
The FB IPO has a price range of $28 to $35 per share. The final price of the FB IPO will be determined by IPO investor demand for FB shares. The FB IPO will involve the sale of 180 million shares by Facebook and millions of additional shares by early Facebook early investors and insiders. If the FB IPO is priced at $35 per share, which many financial analysts believe is likely due to the expected high demand for FB IPO shares, the IPO will raise approximately $13.5 billion. Of this amount, Facebook will net approximately $6.3 billion, with early investors and insiders earning the remainder of the IPO proceeds.
Facebook’s valuation after the FB IPO will be sky high. While the ultimate valuation that Facebook achieves during the FB IPO is uncertain, it appears that it will likely fall within a range of $77 billion to $96 billion, which coincides with the per share range of the FB IPO. The valuation of Facebook after the FB IPO will quickly change once FB shares are available for purchase in the open market. Where the Facebook valuation settles after the FB IPO is unclear. The general investing public may look at Facebook’s future potential to make profits from its incredibly popular web portal and bid up the FB share price, which could lead to an extremely high valuation for Facebook within a few trading days after the FB IPO of $150 billion or more.
One interesting facet of the FB IPO is that Facebook has not specified what it plans to do with the proceeds of the IPO. Companies often pay off debt with the proceeds from an IPO; however, debt is not a problem for Facebook. In line with their quirky way of doing business, Facebook has no immediate plans for the proceeds from the FB IPO.
Facebook’s problem appears to be one shared by many of the big and highly successful technology companies these days: what to do with all of the cash on their balance sheets. While it is nice to have a cash cushion on a company’s balance sheet, having too much cash is a money losing proposition these days in the low interest rate environment. Although they are not revealing any plans prior to the FB IPO, it is likely that after the FB IPO, Facebook will use its enhanced cash position to make strategic acquisitions that expand their social networking sphere, such as the recent acquisition of Instagram by Facebook.
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