If you're not already talking about the Facebook IPO, you soon will be.
The social networking behemoth is set to go public in one of the largest initial public offerings in history on Friday. The event marks the rare intersection of Wall Street financial geeks, Silicon Valley techies, and everyone in between that uses the networking service. Given Facebook's ubiquitous nature, expect everyone and their uncle to have an opinion on it.
Haven't caught up on the latest news and speculation on Facebook? That's what we're here for. The following is a guide walking you through the ins-and-outs of Facebook, allowing you to sound timely and smart when you inevitably post something about the IPO on your timeline.
I've been living under a rock. What's going on with Facebook?
After years spent privately toiling on its social network and growing its user base without any outside interference, Facebook is finally growing up as a company and tapping the larger public market for funds.
The company initially set an IPO price of $28 to $35 a share, valuing the company by as much as $96 billion. But today, it filed an amended filing raising the range to $34 to $38 a share. That would rank it as the largest Internet IPO and one of the largest IPOs in history, according to Renaissance Capital. Still, the price is a tick lower than the initial $100 billion valuation many had expected from Facebook.
Pricing an IPO is always a tricky proposition. The company wants to set its offering price as high as possible, because that generates the most cash for the business itself.
Its bankers, by contrast, don't mind a lower price, since that helps lure in new investors and, in the best case, fuels enough demand to send the share price soaring once the company is public. (IPOs that "pop" this way help drive demand for further offerings -- and the services of the investment bankers who put those deals together.)
When it goes public, Facebook will trade on the Nasdaq under the symbol "FB."
Why does Facebook want to go public now?
Actually, Facebook has to go public. The company's reluctance to go public changed a few years ago when it realized it was on pace to exceed 500 shareholders, which would automatically trigger a requirement that it start publicly releasing financial details.
Furthermore, companies tend to go public in order to raise funds from a broader base of investors, money that they can then invest in their business. For longtime shareholders in the company, it's a way to get the best possible value for their respective stakes.
Facebook is set to raise $13.6 billion from its IPO (or higher, given the increased range), which is a healthy war chest for all manner of things -- buying another Instagram, fending off patent litigation, or building timeline 2.0 (and the next 100 versions).
The company took an unusual route to its inevitable public offering. Most technology startups that build up a large audience will either seek a buyer or go public as quickly as possible. Facebook opted to do neither, privately building its user base and business model and eschewing outside takeover offers and calls to go public until it had no other choice.
As a result, Facebook is a business that's far more mature than the typical IPO. That's both good and bad. On the plus side, the company has a better grasp of its business and boasts impressive user metrics. On the other side, it arguably has much less growth potential than past high-flying tech IPOs.
What's with all the hype?
Facebook's IPO has long been one of the hot stories in both the technology and business worlds. The company follows a long string of recent tech IPOs, including Groupon, LinkedIn, and Zynga, which have seen mixed results. Facebook's IPO will be the granddaddy of all those.
The numbers are staggering. The company boasts 526 million users who check into Facebook daily (and 901 million who log on once a month), 3.2 billion "likes" and comments a day, 300 million photos uploaded per day, and 125 billion "friend"ships.
One study released last week noted that it was Facebook, and not Google or Apple, that was killing the messaging business for the traditional wireless carriers, as users increasingly rely on Facebook for their communications needs.
I use Facebook every day. Is this an IPO I want to get in on?
I wouldn't recommend trying to get in early. IPOs are the textbook definition of an exclusive Wall Street club. Generally, the only investors who really make any money on IPOs are the current shareholders and investors with enough clout or connections to get in before the company actually goes public. These are typically large institutional investors or wealthy individuals who can "flip" the shares once they go public, getting out with a quick profit.
Average folks like us are shut out until after Facebook becomes public, after which it is almost always too late to get in on the stock at a reasonable price.
So while founder and CEO Mark Zuckerberg could actually build a Scrooge McDuck-like money bin for his IPO billions, you may end up stuck with stock that's considered overvalued.
What's less clear are the long-term prospects of the stock, which could still surge like earlier tech companies -- including Google. Still, some believe shares at the set price range may already be too high.
How is it already overpriced? It's not even on the market yet.
The criticism that Facebook is overvalued isn't particularly new, but Barron's just weighed in with some new data (subscription only).
At $35 a share, Facebook would be valued at 70 times its projected 2012 earnings of 50 cents a share, and 18 times its estimated revenue of $5 billion. By comparison, Google trades at $610 a share, but trades at less than 15 times its 2012 profit estimate and six times its revenue.
Such "multiples" are one of the core ways investors gauge a company's value, since stock prices fluctuate depending on the number of shares outstanding. Even if Facebook's $35 stock price looks like a bargain next to to Google's $610 price, it could still be overvalued relative to its financial potential.
Of course, a pricey stock isn't going to scare away devotees like former Apple founder Steve Wozniak, who has already vowed to buy shares.
There are conflicting reports about demand. How can Facebook's IPO be oversubscribed and still suffer from weaker demand?
Further fueling the hype has been a wave of breathless reporting on the status of the IPO. Bloomberg last week reported that the IPO was generating lower-than-expected demand from shareholders. An hour later, Reuters released a story that said that the stock was oversubscribed -- meaning that demand for the stock outpaced the number of shares available.
What gives? Both reports could actually be true. Institutional investors could be ho-hum about the company even as they scoop up the stock. Rather than hold on to it, they could dump the stock once it goes public.
Or, it could be competing investment bankers spreading rumors to manipulate the price of the IPO. But Wall Street wouldn't do that, right?
Bloomberg today said it could stop taking orders for its IPO as early as tomorrow, wrapping up ahead of schedule.
How will Facebook change as a public company?
You can expect Facebook to focus more on making money than ever before. Public companies have to answer to shareholders, who demand steady, growing profits. So despite the company's warning that it will focus on the consumer experience first, profit will certainly be a high priority.
You're already starting to see some of the changes. Facebook confirmed to CNET last week that it was testing paid posts, or charging users to guarantee that a post gets seen by all of its followers (currently, users see only a fraction of posts on their news feed).
The company currently makes money by charging for advertising that ends up on your pages, as well as taking a cut of the revenue generated by games and other apps on its social network. Zynga, for instance, is responsible for a surprisingly large chunk of its revenue.
The company plans to launch its own app store, similar to Apple's own App Store or Google Play, although it won't be in direct competition.
Given that the tech world is gravitating towards mobile, expect Facebook to work on ways to make more money off of its already significant (although non-revenue-generating) mobile presence. The company revealed in its IPO filing that making money off of mobile was still a question mark.
Is that where the Instagram acquisition comes in? How does that affect the IPO?
Instagram is one of Facebook's attempts to secure its position in the mobile world. It's still unclear how Facebook plans to make money off of the deal; Instagram itself didn't really generate revenue. But by forking over $1 billion for the startup, Facebook is showing it's not messing around when it comes to mobile.
The deal may face delays. An FTC probe of the Instagram acquisition may push back the close of the deal, according to the Financial Times (subscription only). The FT says the investigation could take six to 12 months, much longer than Facebook's goal of closing the purchase by this quarter.
The investigation shouldn't affect the timing of the IPO, but could give some investors pause as they consider the risks of investing in the social network.
What's with the hoodie controversy?
It's a lot of noise that adds to the chatter about the pending IPO. Zuckerberg showed up wearing a hoodie to the company's IPO road show, where executives drum up excitement for the stock with institutional investors.
Some investors called it a mark of immaturity, citing it as a potential risk factor for the company. One analyst said it was disrespectful to the institution of Wall Street. Once public, Zuckerberg will retain control with 57 percent of the voting stock in the company.
But guess what? None of that really matters when it comes to the pricing of the IPO. Does Wall Street even deserve the respect it does get? No one is factoring in the hoodie when buying shares of the company; they're looking at the massive user base and the growth prospects -- metrics that actually count.
As for Zuckerberg, he turns 28 today. How many of you can say you were the model of refinement at that age?
Updated at 5:27 a.m. PT on Tuesday: to include increased price range.