People keep asking me what I think about Facebook’s IPO, and the answer is: it has been a huge success for the company and the investors who offloaded their shares. Not so good for the investors who bought of course, but they will only find that out in three years’ time.
The purpose of an IPO is to raise money for the company that is being listed, and (often) for the original investors to cash out. The higher price you list at, the more money for the company and the more profit for the investors that are selling.
So while LinkedIn’s IPO was seen as a huge success when the shares price doubled within days of their listing, the reality is that the company and their advisors misjudged the price and only got half the money they could have done – good for the new investors, bad for the company and the old investors.
In an interview with the BBC earlier this month, Martin Sorrell of WPP interestingly said that he saw “retail investors” wanting to buy into facebook as the brand was so strong. He tellingly didn’t talk about professional investors, who would be less influenced by the hype and might actually think about whether the share price reflected the company’s real value.
And now that the share price is falling post IPO, market commentators feel free to talk about the real value of the company, which some put as about a third of the listing price.
So facebook and the likes of Goldman Sachs has managed to dump onto the market a huge pile of shares for way above their real value – what a success! Trebles all round!