Explaining Southern California's economy

Not so Happy Facebook Day for Facebook IPO

Facebook Debuts As Public Company With Initial Public Offering On NASDAQ Exchange

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The share price of newly debuted Facebook stock is seen at the Nasdaq stock market moments after it went public on May 18, 2012. The highly touted IPO for the social network fizzled after some early froth.

Well, that was a disaster. Facebook closed its first day of trading at just above its offering price of $38 per share. Mark Zukerberg did say that it wasn't Facebook's mission to be a public company, after all, and it looks like he got his wish to at least have it not be the company that brought the Everyday Joe, retail investor back into the market.

Two new subplots. First, you can't believe how tense it was to watch the market close, as Facebook got precariously close to "breaking the IPO" by dipping below $38. That would have been a debacle for Morgan Stanley, the lead underwriter in the offering. My Twitter feed was on fire for the last half hour of trading with tweets about how Morgan was waging an "epic battle" to hold that $38 line (@TheStalwart and @carney — Joe Weisenthal of Business Insider and John Carney of CNBC, respectively, were all over it). Who knows how much money they spent to buy shares, on trading volume that hit 460 million in a single session, a new record.

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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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Facebook buys Instagram for a cool billion

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Facebook founder and CEO Mark Zuckerberg speaks during a news conference at Facebook headquarters on October 6, 2010 in Palo Alto, California.

Facebook just announced that it's acquiring Instagram, the photo filtering and sharing app-maker, for — wait for it — $1 billion! The deal is in cash and shares, although given that Facebook doesn't actually have public shares yet, we'll have to assume that the stock part is coming from Facebook equity that now trades on private markets. Safe to assume that this equity will convert to Facebook stock when the company launches its much anticipated IPO later this year.

Instagram is only about two years old, but its users are sending upwards of 5 million photos a day to sites like Facebook and Twitter. A $1 billion valuation implies revenues of 200 million (at a conservative five-times multiple), which is just off the charts for a company so young. Particularly since Instagram is generating profits of exactly zero.

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In Silicon Valley, nice guys aren't for real

Paul Sakuma/AP

Facebook co-founder and CEO Mark Zuckerberg poses at Facebook headquarters in Palo Alto, Calif., Feb. 5, 2007. This was long before he became a modern-day robber baron.

At Breakingviews, Rob Cox lays into our presumptions about the virtues of Silicon Valley startup founders like Mark Zuckerberg, Mark Pincus, and (by implication) Steve Jobs. Here's a salient paragraph:

Though Silicon Valley’s newest billionaires may anoint themselves the saints of American capitalism, they’re beginning to resemble something else entirely: robber barons. Behind the hoodies and flip-flops lurk businesspeople as rapacious as the black-suited and top-hatted industrialists of the late 19th century. Like their predecessors in railroads, steel, banking, and oil a century ago, Silicon Valley’s new entrepreneurs are harnessing technology to make the world more efficient. But along the way, that process is bringing great economic and labor dislocation, as well as an unequal share of the spoils. Just last week, the Justice Department warned Apple that it planned to sue the company along with several U.S. publishers for colluding to raise the price of electronic books - monopolistic behavior that would have made John Rockefeller proud. 

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Facebook files for IPO, Zuckerberg outlines his vision for 'rewiring' us

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Facebook founder and CEO Mark Zuckerberg speaks during a news conference at Facebook headquarters on October 6, 2010 in Palo Alto, California.

Facebook waited until the end of the business day in New York to file its S1 papers with the Securities and Exchange Commission — the prelude to what could be the biggest tech IPO of all time later this year. 

But who cares about the money? For Facebook CEO Mark Zuckerberg, who's worth about $25 billion, it's all about togetherness. This is from his letter that accompanied the filing (thanks to Nicholas Carlson and Business Insider for the quick breakdown):

We hope to strengthen how people relate to each other.

Even if our mission sounds big, it starts small — with the relationship between two people.

Personal relationships are the fundamental unit of our society. Relationships are how we discover new ideas, understand our world and ultimately derive long-term happiness.

At Facebook, we build tools to help people connect with the people they want and share what they want, and by doing this we are extending people’s capacity to build and maintain relationships.

People sharing more — even if just with their close friends or families — creates a more open culture and leads to a better understanding of the lives and perspectives of others. We believe that this creates a greater number of stronger relationships between people, and that it helps people get exposed to a greater number of diverse perspectives.

By helping people form these connections, we hope to rewire the way people spread and consume information. We think the world’s information infrastructure should resemble the social graph — a network built from the bottom up or peer-to-peer, rather than the monolithic, top-down structure that has existed to date. We also believe that giving people control over what they share is a fundamental principle of this rewiring.

We have already helped more than 800 million people map out more than 100 billion connections so far, and our goal is to help this rewiring accelerate.

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