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The Student News Site of Drake University

The Times-Delphic

The Student News Site of Drake University

The Times-Delphic

    Facebook takes over another aspect of users’ lives with an IPO

    From vacation photos to YouTube videos, Facebook users do a lot of sharing. Now the site is introducing a new type of sharing — stock sharing.

    On Feb. 1, the company filed a $5 billion initial public offering (IPO) in the hopes of expanding its Silicon Valley success story.

    “I think it’s a good business move because it will make it easier for (the company) to raise capital if they need to,” said Rick Long, assistant professor of practice and finance at Drake.

    Since the announcement last week, the tech community has been abuzz with user excitement and analyst opinions.

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    “I think it’s a great idea for them to be going public,” said Jameson Riddick, a Drake senior finance major.

    Though Facebook claimed $3.71 billion in revenue in 2011, Long believes that it will be difficult to predict where the social media site could be headed.

    “It’s hard to know what the price of Facebook is just because it’s so different from how a lot of old-school stock analysts know how to look at companies,” he said. “It’s harder to know what a fair price is.”

    Despite Facebook’s roughly 845 million monthly active users, the site makes the majority of its revenue through advertising, according to the company’s S-1 filing with the Securities and Exchange Commission.

    “Facebook was not originally created as a company,” said Facebook founder Mark Zuckerberg in a letter included in the site’s S-1 registration statement. “It was built to accomplish a social mission — to make the world more open and connected.”

    Though even with 2.7 billion likes and comments per day generating traffic, Facebook’s mobile and tablet apps do not currently display ads, a flaw that the company states as a risk factor in future ventures.

    But some users, like Riddick, believe that it will not be advertisers but the users themselves who will help to keep the site alive.

    “If I invest my money in Facebook, I can make sure that Facebook doesn’t die,” Riddick said. “It almost ensures that Facebook will still be going 20 years from now.”

    For a company that is almost entirely dependent on the interest of its users to exist, the introduction of an IPO can cause corporate changes, Long said.

    “The one thing I think that is a concern of theirs at Facebook is that when you go public it can sometimes change your company culture because your shareholders are looking for more results,” Long said.

    Other social media sites, like Groupon, Zynga and LinkedIn, have already taken the plunge into public trading though it seems uncertain whether public trading will become a trend in social media.

    “I think it really depends on the company,” Long said. “Facebook is making a profit and so it’s easier for them to go public to an IPO.”

    If the social media site’s announcement hype will indeed translate into sizeable profits for investors remains to be seen. Facebook hopes to begin trading as early as April or May.

    “I think it’s just been historically, that when people offer an IPO originally that the company loses value,” Riddick said. “But I don’t foresee them losing that much.”

    Though for college-aged investors, both Riddick and Long agree that investing in Facebook might not be the best decision.

    “I recommend when you start investing, that you should do it in mutual funds,” Long said. “You get more diversification that way.”

    Regardless of market value, for an organization like Facebook that is quickly becoming a technology staple, the IPO announcement is a step in a new direction for social media.

    “It’s different than other products,” Long said of Facebook. “It’s more a part of your life than the tires on your car.”

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