Facebook's IPO and the Market

Facebook is getting closer and closer to taking over the stock market by storm.  The social network’s initial public offering is expected to be set by Morgan Stanley around 5-10 billion dollars, valuing the entire corporation anywhere from between 75-100 billion dollars.  The IPO will be the largest seen, including trumping Google’s 2 billion dollar IPO (Reuters). 

Over the past 5 years, Facebook has successfully taken the Internet by storm.  Not only has it defeated any social networks that have tried to step in Facebook’s way, but even search engines including Google and Yahoo have seen less growth or decreased usage since Facebook’s creation (Floating Facebook).  But what will this mean for the economy as a whole?

The amount of time Americans spend on major sites.  Facebook has taken over the Internet over the past few years, with only Google making a strong push to compete. (Floating Facebook)

Facebook has been given the opportunity to become a powerhouse corporation that rivals Google, and many suspect that the war between the two will just be starting once Facebook goes public.  Last year, Google launched their social network Google+ in an attempt to rival the social network mega power.  At the same time, Facebook has offered within the site applications that rival Google for consumer interest, including games, news, and shopping. 

When I look at the potential growth that Facebook has, I can only imagine the scrutiny the company may receive for attempts of monopolization.  If we look back in history, we see the large corporations getting accused of dominating the market unfairly.  For example, Google has been fighting legal battles for years for its business strategies.  But what I personally see from Facebook is a structure being reverse engineered to turn into Google.  The Economist also points this out by stating their viewpoint towards potential antitrust lawsuits.

Facebook going public could be the most historical IPO to ever hit the market, and it should be interesting how investors plan to settle with the highest IPO in history.  My belief is that the IPO is going to be overvalued, because of the data that can be seen by the Economist. 

As seen above, the amount of revenue that Facebook is gaining is revenue via advertisements.  But how much more growth is there to chase in advertising on Facebook?  The market growth that the Economist claims is through mobile devices, and currently, there are no advertisements placed on the Facebook mobile applications.  I think that Facebook would seriously be risking consumer interest in Facebook if they choose to expand advertisements through mobile devices. 

In the end, the market share that Facebook holds is substantial enough to make for a successful public corporation, but the question behind the properly valued IPO is only something we can wait to see.

References:

1. “Floating Facebook: The Value of Friendship”. The Economist. http://www.economist.com/node/21546020
2. “Facebook: A Fistful of Dollars”. The Economist. http://www.economist.com/node/21546012
3. Hughes, Anthony; Lacey, Stephen. “Facebook to Fille $5 Billion IPO Wednesday: IFR”. Reuters. http://www.reuters.com/article/2012/01/31/us-facebook-ipo-idUSTRE80U29V20120131