Risky business: Facebook stock chancy, but likely profitable

Courtesy of whatblog.com

When search engine giant Google announced its IPO in 2004, it became the largest initial public stock offering for an internet-based company.

Despite the unpredictable nature of the future of new media, Google’s stock is still riding high, with a market value of $140 billion, according to the New York Times.

And now it’s Facebook’s turn. Google was unrivaled in the profitable world of the wide web, until Facebook CEO Mark Zuckerberg announced two weeks ago the company’s filing for an initial public offering. That means that soon, you too can own a piece of the book for somewhere around $30—and it might be a wise decision to do so.

If a company isn’t offering any stock, revealing information on their net worth and revenue isn’t required, something Facebook never did. But when filing the IPO, the numbers were disclosed—a staggering net worth of somewhere between $75 billion and $100 billion, unsurprisingly enough.

Investors and analysts have been squabbling to determine whether buying a share of stock is a smart move. Some say people should jump at the chance, others say long-term investment is too risky, but there’s never been anything similar enough to compare it to. Fact of the matter is, Facebook is an ever-evolving company (not just because of its monetary worth) and it’s not going anywhere—at least not for a while.

According to Forbes, 85 percent of Facebook’s $3.7 billion revenue last year is derived from advertising. If anything, Facebook’s influence in shaping this industry should be the first indicator that grabbing stock is the smart move. Forbes also pointed out online advertising is expected to grow 16 percent over the next year, a growth from which Facebook will definitely reap the benefits.

The cheap and efficient nature of online advertising has begun to take more of a root as advertisers are shying away from those $3 million Super Bowl commercials. According to Forbes, Proctor and Gamble, who spends $10 billion a year on advertising plans to cut back on traditional methods next year, while spending more online.

With Facebook’s advanced network of data, and other companies who will probably P&G’s trend, it’s inevitable there’s going to be an influx of advertising revenue.

Critics who warn investors from buying Facebook stock relate it to previous examples of websites who have gone public.

Linkedin and Groupon, for example, were among a group of websites who (unlike Zuckerberg who held off on offering stock) eagerly dove into the market in 2011, only to suffer sharp declines in value after a promising start.

But Facebook continues to stand apart from any of those websites. It’s proven its ability to stay afloat before, and it’s proving itself currently across all platforms. Users had grown 39 percent to 800 million over the past year, according to the Wall Street Journal, and there’s no sign of the growth stopping. Even with the introduction of similar social media site Google+, Facebook hasn’t taken a hit and remains the top contender.

And other companies have been investing other ways. Facebook has found a way to tap into almost everything—having news or entertainment organizations like the Washington Post and Spotify create apps for the site.

The initial public offering will undoubtedly bring revenue, upfront at least. With Zuckerberg’s steadily lucrative business ethic, that revenue will be used wisely. Google used currency from their stock for the $1.6 billion acquisition of YouTube, a strategy Facebook can and will apply to their own business model.

The filing for Facebook’s IPO states the company expects to make $5 billion in revenue, and will likely be even more—but don’t worry, it’s for the benefit of the public. “We don’t build services to make money, we make money to build better services,” Zuckerberg wrote in the filing.

That may be true, but while Zuckerberg takes his private jet to the New York Stock Exchange, maybe the public can make a little money too.