Facebook Preps for Big IPO

By Jack Wagner

As the initial public offering of Facebook nears, investors and interested parties have begun to question the company's ability to live up to earnings expectations while preserving the user experience that its 901 million monthly active users cling to.

With a projected range of $35 to $38 per share, according to Bloomberg, the $104 billion question is whether or not Facebook can transform 2.7 billion likes and comments a day, 250 million photo uploads daily, and 100 billion friendships into huge profits.

This valuation is hotly debated, with analyst's opinions on the stock greatly varying. In a Bloomberg Global Poll of 1,253 investors and traders, 79 percent said that Facebook did not deserve a valuation so high.

"It's overvalued at that price. Investors are becoming more selective and there are quite a few fallen angels around, like Netflix. Those who buy Facebook at these levels are more speculators than investors," said Filippo Garbarino, who oversees $50 million at Frontwave Capital Ltd. in Chiasso, Switzerland.

One statistic putting investors off is the fact that the projected stock price range of Facebook values the company at 99 times its earnings, a multiple that is higher than 99 percent of companies in the S&P 500, an index of large companies traded on either the New York Stock Exchange or Nasdaq.

Facebook's IPO will occur this Friday. The pending approval of its S-1 form by the U.S. Securities and Exchange Commission (SEC) had caused some confusion, potentially pushing the date back. However, the date was recently confirmed as May 18.

For months, a hoodie-wearing Mark Zuckerberg, who is expected to be worth $19 billion following the IPO, has been touring the country, talking to potential investors and readying himself and his company for the stock issuance. Soon it will be seen whether his efforts have been successful.

Santa Clara students interested in working in the Silicon Valley should watch Facebook's IPO carefully, as it will likely show how many other social media companies, such as Twitter or Pinterest, will fare should they reach an IPO. According to Elspeth Rossetti, director of the Career Center, the top companies where most Santa Clara alumni work are tech companies, with fifty working at Facebook and forty-nine at LinkedIn.

These other social media companies will also determine how well Facebook lives up to expectations, as it remains to be seen whether users will move on to other social media platforms if a strong competitor arises. Looking at the quick adoption (then abandonment) of Google Plus by many Santa Clara students gives insight into the volatility of the industry.

The IPO of Facebook will mark an interesting turning point in the Silicon Valley and the acceptance of social media companies as worthwhile investments or not. "The Social Network" has taken a step beyond where the movie left off and is going to have a big impact on the future of Silicon Valley. Successful or not, nothing will be the same after their IPO date.

Jack Wagner is a junior in the business school.