The social media juggernaut's financial filing reveals some uncomfortable truths about Silicon Valley and Wall Street.
By Allan Sloan, senior editor-at-large
FORTUNE -- There's something to be said for being a fossil when it's time to look at a phenomenon like Facebook's pending stock offering. The medium is new, the numbers are high, the buzz is huge, but it's the same old story I've seen a million times in four decades of business writing: A hot company is graciously offering the investing public a piece of its action. At a hot high price, of course.
Look, I know I'm a print dinosaur. I was wrong, early and often, on Google's (GOOG) stock price when it first went public, for which I ultimately apologized. My one and only Internet innovation came about 20 years ago, when I was among the first business columnists to publish an e-mail address. I don't use social media because I value my privacy and fear committing some online indiscretion that would follow me forever.
That said, I'd like to share three things that leaped out at me from Facebook's financial filing. They involve marketing, hypocrisy, and arrogance -- in other words, standard Wall Street fare.
Marketing
If Facebook's offering ends up being the advertised $5 billion, and the company's stock market valuation is in the expected $75 billion to $100 billion range, it means that only 5% to 7% of the company's shares will be available to public investors.
While there are all sorts of rationalizations for having such a small public offering relative to a company's size, the real reason, as any Street insider will tell you, is to create an initial shortage of stock so that the share price runs up when public trading starts.
It's not enough for Mark Zuckerberg & Co. to have created an amazing, incredibly valuable company over an incredibly short period. They feel the need to use this tacky market trick to drive up Facebook's value even more.
Why do it? Facebook gets bragging rights -- and so do the venture capital types who have put money into the company. A higher Facebook share price begets a higher reported return for investment managers to show potential clients, making it easier to market the next fund. In VC-land, there is always a next fund.
Hypocrisy
A key selling point of social media is that it's a democratizing force -- everyone's on an equal footing, yadda, yadda, yadda. But Facebook's stock structure, like Google's, is far from democratic.
There's one class of voting stock for the public peasants, and a higher voting class that ensures control for the elite insiders. Everyone's equal in theory. Just not in practice.
Arrogance
Ever since Google included a "don't be evil" screed in its initial public filings, a founder's letter has become de rigueur for a hot Internet offering. Zuckerberg's is a classic. My (admittedly skeptical) takeaway: I'm not just a really rich guy, I'm a really good guy because I'm in this to make the world "friendlier," not to make money.
Yeah, right. And Wall Street exists to help small retail investors. And the check is in the mail.
This article is from the February 27, 2012 issue of Fortune.
Like Google and Groupon, Facebook's letter expressed a defiant idealism that -- eventually -- must confront the realities of business.
By Kevin Kelleher, contributors
FORTUNE – For Internet companies going public, the founder's letter is becoming a ritual with a purely symbolic value, a rite of passage into the adulthood of public markets. Larry Page and Sergey Brin started it when Google (GOOG) went public in 2004. Andrew Mason raised it to MORE
Feb 3, 2012 12:16 PM ET
Fortune's curated selection of tech stories from the last 24 hours. Sign up to get the round-up delivered to you each and every day.
* As speculated, Facebook filed an initial public offering yesterday. The social network, which now reports 845 million monthly active users and net income of $1 billion on revenues of $3.7 billion, plans to raise $5 billion. Here's the letter from Mark Zuckerberg included with the S-1 Registration statement. (Fortune MORE
JP Mangalindan, Writer-Reporter - Feb 2, 2012 3:30 AM ET
With an IPO on the horizon and a record number of users, the social network has a lot going for it. Maybe too much for its own good.
FORTUNE -- When Facebook finally goes public it'll be a big moment for Silicon Valley, not only because it may be the biggest tech IPO ever but also because it will validate the social network's staggering growth to date. When I joined, it was MORE
JP Mangalindan, Writer-Reporter - Jan 30, 2012 11:47 AM ET
Fortune's curated selection of newsworthy tech stories from the last 24 hours. Sign up to get the round-up delivered to you every day.
* Facebook, which is inching closer to an IPO, reached a settlement with the FTC after the federal government accused the social networking champ of engaging in "unfair and deceptive" practices regarding privacy, including the act of making user information public without warning or consent. Facebook will now MORE
JP Mangalindan, Writer-Reporter - Nov 30, 2011 10:30 AM ET
Apple's late CEO would be the first dead man -- or woman -- to win the honor
Click to enlarge. Photo: Jemal Countess/Getty
Steve Jobs' name came up Tuesday -- it has many times since 1982 -- in a panel discussion organized by Time Magazine to help promote the 2011 Person of the Year.
Jobs was nominated by NBC's Brian Williams (see video here) and the proposal was seconded -- sort of MORE
Philip Elmer-DeWitt - Nov 9, 2011 8:10 AM ET
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"People like to talk about war. ... Google, I think, in some ways, is more competitive and certainly is trying to build their own little version of Facebook." -- Mark Zuckerberg on Charlie Rose (Business Insider)
* Besides appearing on Charlie Rose recently with Facebook COO Sheryl Sandberg, Zuckerberg also MORE
JP Mangalindan, Writer-Reporter - Nov 8, 2011 3:30 AM ET
Fortune's curated selection of newsworthy tech stories from the weekend. Sign up to get the round-up delivered to you every day.
"Oh wow. Oh wow. Oh wow." -- Steve Jobs' final words (The New York Times)
* Mark Zuckerberg offered a candid interview with Y Combinator, mentioning that he might have one or two regrets. "In Silicon Valley, you get this feeling that you have to be out here," he said. "But it's MORE
JP Mangalindan, Writer-Reporter - Oct 31, 2011 3:30 AM ET
When Google insists that we use our authentic identities on Google Plus, it's because it wants its social service to mirror our real-life selves. But that overlooks a key point about the Internet: It's changing the way we present ourselves.
by Kevin Kelleher, contributor
FORTUNE -- When Facebook CEO Mark Zuckerberg walked out on stage at the company's annual f8 conference this month and started talking about identities, he got a good MORE
Oct 4, 2011 3:16 PM ET
The stakes will be high when the new CEO makes his debut as Steve Jobs' successor
Apple Town Hall. Photo: Corinne Schulze/CNET Networks
Cook
Tim Cook will have a lot on his plate Tuesday when he takes the stage at the Town Hall auditorium on Apple's (AAPL) Cupertino, Calif., campus.
Leaving aside whether he can fill the shoes of Steve Jobs (he can't), or whether the new products and services to be MORE
Philip Elmer-DeWitt - Oct 2, 2011 7:38 AM ETEvery morning, discover the companies, deals and trends in tech that are moving markets and making headlines. SUBSCRIBE
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| Company | Price | Change | % Change |
|---|---|---|---|
| Bank of America Corp... | 7.95 | -0.16 | -1.97% |
| Microsoft Corp | 31.27 | -0.17 | -0.54% |
| Ford Motor Co | 12.28 | -0.25 | -2.00% |
| General Electric Co | 19.39 | 0.17 | 0.88% |
| Citigroup Inc | 32.36 | -1.00 | -3.00% |
| Index | Last | Change | % Change |
|---|---|---|---|
| Dow | 12,938.67 | -27.02 | -0.21% |
| Nasdaq | 2,933.17 | -15.40 | -0.52% |
| S&P 500 | 1,357.66 | -4.55 | -0.33% |
| Treasuries | 2.00 | -0.04 | -1.96% |
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