Friday, June 15, 2012

IPO and the Face !

I still remember the question that I was asked by one of my young friend cum relative. I was asked what type of software is IPO and I was dazed a bit and I kicked my brain to decode the word IPO thinking the same would be some new age technology that hit the market recently. Then abruptly the ‘financial inflows’ happened and my mind kicked start- Initial Public Offer. To a school going boy, it is hard to explain the ample financial aspects fully. Anyway I wore the lecture gown and started.  I was keen to start talking about companies’ valuation and I tried lightly taking simple or you could say silly examples.  He was educated well regarding the valuation when I explained that every company should undergo a valuation process when the company is going public. So Facebook also went through the same pipe line and they were tagged with a value of 100 billion dollars. My little friend caught the word ‘public’ which I was expecting. Public is nothing getting out of the shell and using public’s money for the company’s drive.  It is done for raising the fund and for the same the public company should trade in a market. The explanation I made was hefty to make that guy understand. Our talk went long and when the guy was throwing a lot of questions I started thinking on many aspects. My mind went to many routes letting many confusions to board my mind. What made Facebook to win such a huge value? Is it really worth?  -Zillion questions poured in.  Normally a brick and mortar company is valued according to the asset the company has. It took a while for me to connect the words ‘asset’ and ‘Facebook’.

 Initially I was unable to understand what asset Facebook as an organization has and we could say the number of netizens those who are into Facebook are their asset. But how millions of users piled these much for value for a web-based company? Is it a reliable metric to deal for valuing a firm? Someone can easily make eyes wet thinking of Google’s Orkut.
Even though Orkut had good presence only in India and Brazil, they were unable to stop the user- erosion at least in these countries. So putting light on the future of Facebook, it is hard to digest the value it had in the NASDAQ. The reflections are pretty visible as the valuation put a reverse gear to 80billion dollars and the stock price is also rolling down. A spell of a few years should be taken in account when a company is valued and in the case of a web based firm the life is uncertain. Any sand can be a rock tomorrow. If another social media website came in which people feel better than Facebook, that would definitely replace Facebook and all the users including me and you would leap into the new one.
  In spite of these tough roads, Facebook is facing law suits from shareholders accusing that Facebook is disclosing selected documents and Facebook tries to lower their revenue forecast. It was also disgusting that, the so called ‘technical error’ at NASDAQ on a Friday during the Facebook trade left some of the shareholders with loss. As a conclusion I am forced to drag the same sentence that has been often seen on web pages which talk about Facebook IPO- something went wrong!

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