Facebook readies IPO with Morgan Stanley as "lead left" investment bank
Social media giant Facebook will probably file papers with the
Securities Exchange Commission for an initial public offering this
week, according to anonymous sources.
The Wall Street Journal cited "people familiar with the matter," a familiar term in financial journalism that likely indicates sources within either Facebook itself or in Morgan Stanley ( MS ). The Journal reported that the New York investment bank will probably act as 'lead left' on the IPO , occupying the eponymous upper-left hand spot on the prospectus.
Facebook's IPO remains the most eagerly awaited filing of the past several years; early estimates suggest that the social network could raise around $10 billion in the event, giving the company a potential value of up to $100 billion. Google, for comparison, holds a market capitalization of about $188.6 billion.
The IPO comes after several other high-profile social media and web-based firms went public, with investors treating the debuts of LinkedIn ( LNKD ) and Zynga ( ZNGA ) as a kind of dry run for the big filing. LinkedIn has a far smaller - though more closely targeted - user base than Mark Zuckerberg's firm, and its shares haven't performed terribly well since they went public last May, dropping 18.7 percent in that time. However, last month saw a 20 percent increase in the share value of the business -oriented network, pushing the stock to $76.64.
Zynga, which produces the incredibly popular online games Farmville, Cityville, Mafia Wars and Words With Friends, actually has a deep symbiotic relationship with Facebook, the platform for all of its biggest hits. In turn, Zynga chief executive officer Mark Pincus drives a fair amount of traffic to Facebook, though it's safe to say that while the latter could survive without the former, the opposite probably isn't true.
Down on Wall Street, Morgan Stanley executives will surely be crowing if they do get the coveted lead left spot over rival Goldman Sachs ( GS ), the firm many assumed would take charge of this offering. However, Lloyd Blankfein's company will likely play a role alongside James Gorman's - with a $10 billion offering, most of Wall Street will get a slice of the IPO pie.
The most serious question facing Zuckerberg & Co. is how much growth remains for Facebook, and what form that growth will take. Compared to one of its biggest peers, Google ( GOOG ), Facebook's filing will take place somewhat later in the corporate life cycle. Larry Page and Sergey Brin founded Google in 1998, taking the company public six years later in 2004 - well after the collapse of the dot-com bubble - with Morgan Stanley and Credit Suisse ( CS ) as underwriters in a "Dutch auction." Mark Zuckerberg founded Facebook eight years ago, and the network is far more famous - and its IPO far more widely anticipated - than Google was at the time of its own offering.
With appetites running high for the biggest name in social media to go public, bullish spirits could push the IPO to an extremely high valuation. In turn, investors might see a sharp day-one drop if many choose to cash out quickly. While Facebook definitely represents one of the great success stories of the Web 2.0 economy , a quick rush into the stock should end up creating more than a few cases of buyer's remorse.
While Zynga's filing is different in a number of key ways, its first-day pop offers an object lesson for cautious investors. The gaming company went public at $10 per share, spiked early in the day and then dropped off to below its initial price. It took the better part of two months to recover - so those who got in on the IPO and sold quickly made their cut, while retail investors buying on the first day after the IPO definitely got burned.
Facebook should be a major player on the web and in the stock market for a long time. The tough question is when the best time to buy in will come - or whether that time has already passed.
As of Sunday, it's not known whether Facebook will list on NASDAQ or the NYSE , or what its ticker symbol will be (although BOOK would be nice and simple).
?Disclosure: The author is long Zynga ( ZNGA ).