Explaining Southern California's economy

Facebook v. General Motors

Facebook Expected To File For IPO

Justin Sullivan/Getty Images

A sign with the "like" symbol stands in front of the Facebook headquarters in Menlo Park, California. General Motors evidently doesn't like Facebook as a platform for paid ads.

I've been meaning to write something about Facebook — whose IPO on Friday is now hitting the stratospheric prospective level of $16 billion, with 422 million shares for sale — and General Motors, whose 2010 IPO set the record for public offerings, at $20.1 million (478 million shares sold). GM came out at $33 per share, while Facebook could debut at $38.

But of course GM's IPO was its second. IPO number two was necessary to return to the public markets after the company's bankruptcy in 2009. IPO number one took place back in 1916. In the intervening period, GM grew to be the most important company in the American corporate firmament, owning half the U.S. auto market during its Golden Age in the 1950s and employing hundreds of thousands of people.

Facebook is still relatively young, but it's the dominant social network, with nearly a billion users and the ability to make billions each quarter by selling ads against content and activity that's for all practical purposes donated. However, Facebook doesn't employ hundreds of thousands and never will. And that's why GM's decision to pull $10 million in ad spending from the site, saying it's been "ineffective," is very interesting.

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LegalZoom IPO: Be afraid, lawyers! Be very afraid!

Legal-Zoom

LegalZoom just filed for an IPO, hoping to raise $120 million.

Glendale's own LegalZoom filed for an IPO on Friday. Okay, so it's not quite Facebookian in value. Whereas Zuck & Co. are aiming to raise $5 or $10 billion, LegalZoom, which has been around since 1999 (making it about 3000 years old, in Internet years) wants to bring in only $120 million. But don't be fooled by that seemingly modest valuation for a company that's been around since the halcyon days of Web 1.0. LegalZoom could be poised to partake in one of the most significant disruptions American business has ever seen.

The legal professional is being totally re-arranged by the economic downturn. Law firms have imploded. Law school grads — who used to be able to bank on fat salaries in exchange for 100-hour work weeks at big firms, if they attended top programs (and they needed the big bucks to pay off their hulking loans) — are struggling to find jobs. Law is no longer the often-boring but generally reliably lucrative escape hatch it once was for decades of career-confused liberal arts majors. 

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Will the 'Facebook effect' really help California's finances?

Justin Sullivan/Getty Images

The Facebook website is displayed on a laptop computer. Will the IPO cure California's sickly finances?

Now that Facebook has set a date for its IPO — May 18 — produced a "road show" video and priced its offering at somewhere between $28 and $35 a share, there's renewed discussion of how the $90-billion-ish debut of this California company will improve the state's troubled finances. Here's the L.A. Times:

California is hoping Facebook will have a “Google effect” on the state’s economy. Capital gains tax receipts from stock sales rose to $54 billion in 2005 from $39.7 billion in 2004, the year Google went public, according to Franchise Tax Board figures.

When Facebook executives and employees cash in shares, the state takes a 10% cut of the profits.

In February, Legislative Analyst Mac Taylor became the first state official to estimate what Facebook's big Wall Street debut could mean for California's ailing budget. He said the IPO could pump nearly $2.5 billion into state coffers over the next five years.

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Facebook wants to make everyone do everything for free...for Facebook

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Facebook founder and CEO Mark Zuckerberg speaks during a news conference at Facebook headquarters. The company is planning an IPO for May 18.

If you'd like to hear no end of dime-store philosophy and quasi-futurist blah-blah about our glorious networked future, then you really need to watch the video that Facebook produced for its IPO roadshow. It's designed to get investors excited, so bear that it mind while you watch tight t-shirt Mark Zuckerberg and his merry soon-to-be-millionaires hacker band outline a world in which billions of people spend considerable chunks of time providing Facebook with immense amounts of free content and labor in exchange for having their activities sold to advertisers.

I've conducted some informal surveys about this issue — the free-labor-and-content-being-turned-into-$100-billion thing — and found that, for the most part, people who use Facebook either haven't given that question any thought or don't care. They may be acting out of their economic self-interest, but the counterargument I generally get is that Facebook produces a product that they love and can't avoid using. 

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How the Facebook-Instagram deal shakes out

The home page for Facebook founder Mark

Karen Bleier/AFP/Getty Images

The home page for Facebook founder Mark Zuckerberg. Facebook today revealed details of its purchase of Instagram.

Facebook "reported" quarterly financials today, as part of the prelude to its IPO in May. Through a required filing with the SEC, we learned that it's costing a lot more to be Facebook, as profits dropped 12 percent, to $205 million from $233 million. We also learned how the Instagram deal is getting done. This is from the LATimes:

The regulatory filing also disclosed details of Facebook's agreement to buy Instagram. The company paid for the $1-billion deal with $300 million in cash and 23 million shares. Facebook placed a value of $30.89 apiece on its shares as of Jan. 31. Facebook said it would pay Instagram $200 million in cash if the government blocked the $1-billion deal.

So only 30 percent of the deal is in cash, which still isn't too bad for a company — Instagram — that didn't exist two years ago and has no revenues and no real business model (besides being sold to Facebook for $1 billion after it ate Facebook's lunch for a year in mobile photo uploading and sharing). 

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