NEW YORK--The line on Wednesday night snaked outside the New York Stock Exchange building as a swarm of marketing, advertising, and other media types waited to get into the party that AOL was throwing on the trading floor to mark its spin-off from Time Warner. Onlookers weren't really sure what the big deal was.
An evening commuter walked past, craning his neck up at the massive AOL-logo banner--yes, the one with the fuzzy blue monster on it--and asking a few of the people in line, "Why's AOL having a party?"
"Spinning off from Time Warner."
"Oh, finally," the commuter replied, and sauntered off into the night.
Approximately 10 minutes later, security stalled a pack of party guests between the coat check and the entrance to the trading floor so that they wouldn't get in the way of AOL CEO Tim Armstrong's photo op on the red carpet with publishing industry dame Anna Wintour. There were waitresses carrying massive bourbon-infused cocktails called "The Ticker," sushi chefs chopping up spicy salmon rolls, and a photographer snapping pictures of guests posing with the iconic NYSE gavel. Oh, and there was a DJ booth where rap legend Sean "Diddy" Combs was calling the shots.
The next morning, long after that had all been cleared out, trading of the new AOL stock commenced: it fell in the first hour, hovered around $23 for most of the day, and climbing a few notches to close at $23.52. It looked less like the refreshed, shiny AOL that had turned the NYSE trading floor into a celebration of its vision of 21st-century publishing, and more like the AOL that, in preparation for the spin-off, cut 2,500 employees and began to explore selling off peripheral businesses like ICQ and MapQuest.
"I haven't looked at it because we've been so busy," Armstrong, in a morning call with reporters and analysts, said of the company's stock price. "The stock may go up and down, but I can tell you internally that the company continues to progress and get stronger."
Not very long ago, AOL was a punchline: edgy publishing outlet Thrillist, known for its in-the-know men's newsletter and wacky stunts that often involve party planes, threw a party in the summer of 2008 with a "vintage AOL" theme that interspersed the once-ubiquitous dial-up tone with mid-'90s pop songs (Thrillist CEO Ben Lerer, it should be said, happens to be the son of former AOL exec Ken Lerer). AOL was the ultimate brand for the old Internet, the one that would forever be associated with the "You've Got Mail" recording and the e-mail addresses that have long since fallen out of favor.
Its attempted revamp does elicit a few "over the hill" snickers, but in New York's media community--the people flooding the Stock Exchange on Wednesday night--it's treated with a good deal of respect. Armstrong was very well-regarded in his prior gig as a sales executive at Google. At the lavish AOL spin-off party, there were fewer snarky remarks than expected about wasted money, premature celebration, the disastrous results of AOL's original Time Warner merger in 2000, or how many laid-off employees the event had cost.
Because these are the people who, as much as New York media likes to thrive on an aura of cynicism, really do want the new AOL to succeed. The industry's been more or less smashed to bits, with magazines closing up shop and newspapers going through yet another fit of layoff rounds. Regardless of early concerns about its stock price, the new AOL is a bright spot.
Using its 2005 purchase of blog network Weblogs Inc. as a cornerstone and ambitiously rolling out new properties to add to the arsenal, AOL increasingly shifted focus away from its access business and more toward publishing. The company uprooted its corporate headquarters from Dulles, Va., to New York, picking a downtown office space in much closer proximity to the trendy digital agencies and blog networks of SoHo and Cooper Square than to the media industry stalwarts--including then-parent company Time Warner--in midtown.
Shortly before the spin-off, AOL announced a project that Armstrong had been hinting at for some time: Seed.com, a sort of clearinghouse for assigning freelance journalists and photographers to areas that its "engine" has deemed to be high-interest or in need of coverage. The company hired veteran journalist Saul Hansell to helm the project.
"Basically, our system allows us to take lots of data to figure out how to make better content for the Internet," Armstrong said in Thursday's conference call.
Seed.com has garnered some criticism: that it's really no different from existing business models of companies like Demand Media; that it will invariably prioritize tabloid-like, sensationalist stories with huge readership potential rather than less titillating but important journalistic endeavors; or that regardless of how innovative it is, it won't save AOL's advertising revenues.
Armstrong, of course, has a "go forth" attitude toward it all. "We focused the strategy of the company very clearly and succinctly around content, advertising, and communication," he said in Thursday's call. "And as we think about the future and stay focused on what we're going to be executing, we're in a good place because of where the Internet is headed. The '90s were about access, (and) AOL played a major role in access...This decade has really been about platforms: Google, Facebook, Twitter, etc., and we believe that the next decade will really be about content.
Not everybody agrees. But the invite list for AOL's celebration sure hopes Armstrong has the right idea.
Facebook is changing the structure of its company stock to a dual-class system, a move that hints the company may be looking toward an initial public offering--even though it says it has no plans to do so yet.
Here's how it works. Existing Facebook shareholders currently have Class A stock. That'll be converted to Class B stock, which has 10 times the voting power of Class A. Should those shareholders sell their stock when Facebook goes public, they'll be converted back into Class A stock--otherwise, they'll stay the way they are.
The story was first reported by The Wall Street Journal, which added the detail that this stock structure change will give founder and CEO Mark Zuckerberg more power unless he opts to sell stock during an IPO. But while Zuckerberg and other executives have said that they eventually plan to take Facebook public, they continue to say that there are no concrete plans for it. Two years ago, Zuckerberg said that it was "years out."
"This revision to the stock structure should not be construed as a signal the company is planning to go public," a statement from Facebook read. "Facebook has no plans to go public at this time."
Facebook employees and investors can now sell some of their stock to Digital Sky Technologies, the Russian investment firm that infused $200 million into the social network this spring.
Part of the deal at the time of the investment would be that Digital Sky Technologies would buy back up to $100 million in common stock from shareholders whose shares have vested.
Now, Digital Sky Technologies is purchasing stock at $14.77 per share, which assumes a valuation of about $6.5 billion for Facebook, according to Brad Stone of The New York Times, who first reported the news. That's lower than the $10 billion valuation at which DST originally invested, as well as the $15 billion at which Microsoft invested $240 million in the fall of 2007. But those two figures are considered to be preferred-stock valuations, not paper valuations.
But $6.5 billion is still a higher valuation than a few months ago. Before DST's investment brought some order to Facebook's internal stock trading, an employee at a firm that brokers privately-traded stock told CNET News that some Facebook employees, frustrated that they had not yet had a chance to cash out stock through an acquisition or an initial public offering, were looking to unload stock at a valuation well under $3 billion.
That sort of trading was difficult for Facebook to control. With the DST investment, employee stock sales became more official and easily regulated.
"While individuals must make their own decisions about participating in this program, I'm pleased that the price DST is offering is much greater than the price originally considered last fall," Facebook founder and CEO Mark Zuckerberg said in a statement. "This is recognition of Facebook's growth and progress towards making the world more open and connected."
On the flip side, the relatively low valuation may mean that Facebook employees will be more reluctant to sell to DST. Some may prefer to hold out for the possibility of an acquisition at a higher valuation, or wait until Facebook goes public--something that always seems to be just off the horizon.
Facebook's valuation has been one of the most talked-about numbers in Silicon Valley, especially as the company (reportedly) toys with the idea of an IPO. There were rumors that Zuckerberg had rejected funding that would value the company at $4 billion, shortly after legal documents from the ConnectU vs. Facebook trial revealed that the company then valued itself at $3.7 billion.
And Facebook can look forward to be even more front-and-center in the gossip industry's crosshairs: the alleged tell-all about the social network's origins, Ben Mezrich's "The Accidental Billionaires," hits stores on Tuesday.
On Monday we heard that Facebook was allowing current employees to sell a delineated portion of their common stock, something that the company confirmed on Tuesday.
Now, VentureBeat's Eric Eldon, who also originally reported the Facebook tidbit, says that LinkedIn employees are going to have the option of doing the same. The business social network, Eldon wrote, is allowing current employees to sell 20 percent of their equity in the company at a $500 million valuation. That's quite a bit lower than the billion-dollar valuation reportedly bestowed upon the company after its recent $53 million Series D funding round.
LinkedIn declined comment on the report.
For both companies, it's probably a response to the fact that these Silicon Valley high-flyers are still independently run, with neither willing to cave to a buyout but with the likelihood of an IPO still less than concrete. According to VentureBeat, banks aren't willing to take the companies public unless they pull in higher profits.
Facebook more or less acknowledged in its confirmation statement Tuesday that the plan is a way for employees to "sit tight" while the company works on the "growth over profits" mantra that COO Sheryl Sandberg encapsulated in a talk at the F8 Conference last month. "To provide employees with a financial cushion while we continue to build the company, Facebook has designed a one-time program to enable employees to realize some liquidity," the statement read.
If you see an increase in the number of 20-somethings driving nice cars around Palo Alto any time soon, maybe this is why: VentureBeat reported Monday that Facebook is ready to let current employees unload a fifth of their stock options, at the company's internal valuation of $4 billion. It's slated to start this fall. For early employees of the company, which was founded in a Harvard dorm room, this could mean some legit cash.
Facebook's valuation was reported at $15 billion when Microsoft took a $240 million stake last year, but the company has backtracked on that number, referring to it as a "business deal" rather than a former paper valuation. Microsoft's stake was considered to be in "preferred stock," whereas the $4 billion valuation refers to common stock.
The company's actual valuation came under scrutiny in the last throes of the ConnectU vs. Facebook trial, in which plaintiff ConnectU's founders cried foul that their erstwhile rival hadn't disclosed its true worth during the legal process.
If VentureBeat's report is true, this could be a sign that another way for Facebook employees to cash in their stock--an initial public offering or a sale to a big tech or media company--isn't on the immediate horizon. It also might raise a few eyebrows: for a young corporation still abiding by a mantra of "growth over profits," employees selling stock could seem a little bit presumptuous.
Facebook representatives were not immediately available for comment.
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