Facebook Could Spawn Thousands of Milionaires 434
Hugh Pickens writes "Retuers reports that the world's No. 1 online social network is preparing for a blockbuster initial public offering that could create thousands of millionaires as Facebook employees past and present begin hatching plans on how to spend their anticipated new wealth. 'There's been discussions of sort of bucket list ideas that people are putting together of things they always wanted to do and now we'll be able to do it,' says one former employee who expects his shares to be worth $50 million and is planning to book a trip to space with Virgin Galactic that would cost $200,000 or more. 'It's been a childhood dream.' Another group of Facebook workers has begun laying the groundwork for its own jungle expedition to excavate a relatively untouched site of Mayan ruins in Mexico that sounds like Raiders of the Lost Ark. But for many of Facebook's staffers, the IPO will provide the means to pay off school loans and buy a house or new car and many homeowners and real-estate agents are eagerly anticipating a surge of new buyers that could push prime real estate to new heights. 'If a Facebook guy buys a house and wants to remodel it, maybe the contractor will buy another car,' says Buff Giurlani. 'Maybe the realtor will put a car in. There's a trickle-down effect.'"
Trickle down (Score:4, Interesting)
The only real 'trickle down' is in production, not in consumption. People who invest their savings into businesses create opportunity for new products, new services, new jobs and new investments for others. That's the only real trickle down and what is called 'trickle down' in modern society is no such thing. 'Trickle down' based on spending is very limited, very narrow and is sporadic (so somebody spends a few hundred thousand dollars today, he is not going to spend the same amount tomorrow).
Besides, any spending that takes place disperses the investment capital and makes it less likely to be used as an investment. The real trickle down is working very well, but it's working in China, not in US or Europe. It's working where people invest and produce.
As a side note any taxes also destroy investment capital and prevent economy from growing for the same reason - this stuff is not used for meaningful production, only to subsidize consumption one way or another.
--
PS. I said it on 16th of September that holding deposits in banks has become dangerous, because banks will just steal the deposits. [slashdot.org]
On October 25, 2011 MF Global reported a $191.6 million quarterly loss as a result of trading on European government bonds. [wikipedia.org] On October 31, 2011 MF Global filed for Chapter 11 bankruptcy. Depositors lost money, not 'investors' or traders - depositors. The bankers are now stealing deposits as I said they would, so stay clear of banks.
Re:The smart ones... (Score:5, Interesting)
Wouldn't all of them selling their stock make the price plummet?
Possibly. That depends on how much of the original stocks are distributed to the employees versus how much is sold to raise money, and how much is sold in the IPO. The total percent owned by employees could potentially be a small portion of the total volume.
If, for some reason, the employees actually held most of the total sock volume, then yes if they sold it off immediately that would be bad for the price.
Though frankly I'd be astonished if it was worth anything at all by 2016.
Re:The smart ones... (Score:5, Interesting)
can put you in a very bad position if you start spending "your" money right after the IPO in anticipation of the future wealth, and then the stock tanks and you're now in debt.
That is an excellent point. We don't know how financially knowledgeable most of the employees who will receive stocks are. They may well be taking advice from fools and end up believing themselves filthy rich before they ever see any actual money from their stock.
Even worse would be if employees invest in it for their retirement accounts. Back when I worked at CompUSA (back when it was American-owned and publicly traded), I knew someone who invested heavily in company stock for his retirement. Thankfully I was not that person, although I was tempted. The company folded before he reached retirement, as I recall - I just don't know if he got anything back from the buyout.
The Good. The Crazy. The Disgusting (Score:5, Interesting)
The good. the IPO will provide the means to pay off school loans and buy a house or new car.
It is good to get out of debt and solidify yourself.
The Crazy. one former employee who expects his shares to be worth $50 million and is planning to book a trip to space with Virgin Galactic that would cost $200,000 or more
It is crazy to become wealthy then chance it all on being shot into space.
The Disgusting. real-estate agents are eagerly anticipating a surge of new buyers that could push prime real estate to new heights
Agents that can't wait to pump up the prices on homes in anticipation for a very small number of potential clients.
Re:Trickle down? (Score:5, Interesting)
"As for FB, my bet is still that it goes the way of MySpace before too long."
I'm hoping for something more mature, but the internet has this way of recycling ideas...
"There was a kind of ghostly teenage DNA at work in the Sprawl,
something that carried the coded precepts of various short-lived
sub cults and replicated them at odd intervals."
Re:No bubble here. (Score:2, Interesting)
"valued at" â "worth"
Semantics whine yes, but as you pointed out, the company is extremely over valued. Certainly not one that would be the target of someone like the "Cash McCall" character James Garner once played. This is not to say the stock price won't rise, after all the people who are inflating this bubble believe things like "good government" is possible and look how much those are inflating.
Re:The smart ones... (Score:5, Interesting)
Re:Trickle down (Score:3, Interesting)
Banks competed and some went bust. That's a good thing - prevents a bad bank from continuing bad practices. You don't like banks going bust? Well, your government doesn't like it either, that's why it has destroyed your productivity and will destroy your currency - to keep appearance of a working bank system.
What is funny is that it seems you are arguing for regulated banking, saying that without regulations the banks fail, yet you admit that banks used to fail individually, but not institutionally. But today, with all the regulations (and there are tens of thousands of regulations) and with all the regulatory bodies (hundreds of them), the banks are failing institutionally and globally because of all of the governments sticking their noses where they don't belong - business and money.
I didn't get any money from the Fed (Score:5, Interesting)
Of course, I remain unconvinced FB can sufficiently monetize all those users to make the IPO a good deal for the average innvestor. But the point of the OP was that the workers were somehow being stolen from when they are already holding FB stock and will be enriched come IPO day. Just makes no sense.
Comment removed (Score:4, Interesting)
Re:I didn't get any money from the Fed (Score:5, Interesting)
I'm an individual retail investor, and I've done quite well in the market, thanks. In fact, it's lifted my middle class family well into the "one percent" (net worth).
If you are indeed an individual retail investor, you most certainly had to use margin loans to buy stocks -- otherwise you would never be able to afford them. And while from your personal point of view Fed did not give you "free money", as your collateral stocks were tied up, from the market's point of view there was a situation when someone had a cake (stocks are still on the market, part of company's market cap) and ate it, too (you bought more stocks without selling other ones).
If you later sold some stock and paid back the loan, you still ended up with the difference (because stock price grew, dividends were paid, and dollar was devalued), so overall effect was money being injected into economy without any additional product being produced (neither company with "old" nor "new" stock, did anything different as a result of those manipulations). This dilutes the currency (for everyone) while enriching someone (you, your brokerage and your brokerage's bank). In a typical tragedy of the commons fashion, the benefits gained individually are far less than harm taken collectively.
How much is Facebook really worth? (Score:5, Interesting)
Typically employees can't sell their shares until at least six months post-IPO.
The SEC required a 2-year wait until the early 1990s. Which is partly why IPOs that ran way up after the IPO and then crashed [wikipedia.org] were so popular during the original dot-com boom.
How much is Facebook really worth, anyway? Let's look at the numbers. Facebook revenue for 2010 was $1.86 billion. [pcmag.com] Goldman Sachs, which makes a private market in Facebook stock, sent a report to their investors indicating Facebook earned $355 million in the first 9 months of 2010. [reuters.com] That would be $473 million for the year, for a 25% profit margin. Of course, those are unaudited numbers. When the SEC filings take place for an IPO, they may decrease as accounting gimmicks are disclosed and discounted.
The next question is, do we value Facebook as a growth company or an ongoing company? Let's look at Facebook's traffic stats. [alexa.com] Traffic went up steadily until mid-2011, when it peaked. (Before Google+ started, incidentally.) It's been down a bit since then. So Facebook may have maxed out and started on its decline, like every other social network from AOL to Myspace did. There probably isn't a lot of growth left. Is there anyone not on Facebook who wants in?
OK, what's a company with $473 million in annual revenue worth? Google's price/earnings ratio is 21.39. Microsoft, 9.34. IBM, 12.69. Netflix 16.11. AOL 26.43. Yahoo 19.51. IAC (Ask's parent) 18.27. So we can say that the market is at best valuing mature Internet companies around 20x earnings.
That gives Facebook a valuation around $9 billion.
Even that may be optimistic. That assumes Facebook's user base doesn't shrink. Remember when Myspace was on top? This is Myspace on the way down. [alexa.com] To earn that $9 billion valuation, Facebook has to maintain its current size and profitability for 20 years. Does anybody think that will happen?
(How many people here remember when one of the founders of Slashdot was asking on here what to do with his money when VA Linux, the parent of Slashdot, went public in 1999? They had the biggest first-day runup after an IPO ever. The stock hit $239 on the first day, and then went into a screaming dive. Six months later it was around $40. Not as rich as he thought. By 2002, it had dropped to $0.54. The stock is still trading as GKNT, formerly LNUX. Here's the chart. [yahoo.com])
Re:Trickle down? (Score:2, Interesting)
Re:I didn't get any money from the Fed (Score:5, Interesting)
No, I benefit by out performing the market significantly. This year I'm up 8.5% (market is roughly flat, going by the S&P 500). Last year I did 48%, the market did 13%. I've outperformed by more than 5% for the past 5 years (when I took control over my own stocks), although outperforming in 2008 was done by just getting my money the hell out.
Margin has uses, but if you're borrowing at all times, you're a fucking idiot. All good strategies have cash reserves so you can buy on dips and do cost averaging or react to new opportunities. Borrowing at all times prevents that. Margin should only be used short term when you're committing that cash reserves. And even then you should do so carefully and not max out your borrowing. My personal rule is that I need to be able to absorb a 50% loss without hitting the margin call threshold, I won't borrow more than that. And I think I've had any margin for only about 1 week this year on a short term arbitrage play.
Re:I didn't get any money from the Fed (Score:2, Interesting)
No, I benefit by out performing the market significantly. This year I'm up 8.5% (market is roughly flat, going by the S&P 500). Last year I did 48%, the market did 13%. I've outperformed by more than 5% for the past 5 years (when I took control over my own stocks), although outperforming in 2008 was done by just getting my money the hell out.
O RLY
Re:What money? (Score:5, Interesting)
In fact, some of the failures of followers of Keynes' theories (or principles Keynes later adopted) have been rather spectacular: the claim by Irving that the economy was doing wonderfully, the very day before the crash of '29, their utter failure to predict what the economy was like immediately after WWII (they were 180 degrees wrong), their claims that what we now call "stagflation" was impossible (until it actually happened in the 70s), its failure to predict any problems at all around the 2001 recession or the 2008 crash (both times saying "Come on in! The market's fine!")
I mean, it's almost laughable. It's time we got rid of government officials who insist on following provably failed economic policies, and get somebody in there with some actual sense.