My Obligatory Facebook Column

The Facebook IPO has no direct relevance to how IT professionals do their jobs. I’m sure everyone will be watching it today, though, and wasting, er, spending a lot of time discussing it.

Thus comes my responsibility as a member of the IT industry’s Fourth Estate to write about it.

I’ve tried to work myself up into a lather about how overvalued Facebook is, how ridiculous (and damaging) these technology bubbles are to the industry and to the global economy, and how unfair life generally is. But I just can’t get too worked up over this. If someone wants to blow their money in Las Vegas or on too many visits to Disney World, let them do it, I say.

It doesn’t matter to me whether someone buys Facebook stock today, either.

Remembering When…
I do think, however, there may be some value in taking a quick peek back at some of the industry’s landmark IPOs. The grandaddy of the modern age would be Netscape, which went public on August 9, 1995. This IPO was a very big deal back then, kids. The stock more than quadrupled in price during its first day on the market, closing at $58.25 and creating a market capitalization of $2.3 billion for Netscape.

What few of us understood at the time was that this was a disastrous day for the company. The stock was offered at $14 a share, which is what the company reaped. Any profits made by investors selling at a higher price than that went to those investors, not to Netscape. The company, in essence, left more than $1.5 billion on the table. This was considered to be a large amount of money in those days.

Yahoo had a similarly splashy, if much smaller, IPO in April of the next year. The stock was offered at $24.50, peaked at $43 during the day, and settled in at $33. This valued the company at less than $1 billion, a seemingly modest amount, but not bad for a company which had less than $2 million in annual revenue at the time.

Yahoo has been losing altitude for a decade now, with the rise of Google’s search algorithm replacing Yahoo’s pioneering index-based approach to finding stuff on the Worldwide Web. Google’s superior approach was the foundation of its IPO success a few years later, in August of 2004.

Determined not to leave money on the table (as had Netscape and so many others in the 90s), Google took a unique variation of the “Dutch Auction” approach, in which investors bid on shares before the offering. This nipped any sort of Tulip Mania in the bud and kept the stock from skyrocketing and gyrating that first day.

Even so, Google was valued at $23 billion at the end of the first day, having sold only about 6.5 percent of its available shares in the public market.

One Hundred Billion Dollars
So now we come to Facebook and its $100 billion valuation. This number is not the biggest ever associated with an IPO, but it does cast a long shadow over Google’s day in the sun some seven-plus years ago. There’s really only one relevant question here: Is it worth it?

As a writer and analyst within the IT industry, I don’t buy technology stocks. My approach has the added benefit of saving me a lot of heartburn over the course of time. I also don’t make recommendations. This policy is a good one, I think, because I really have no idea of whether Facebook will soar or sink today, and soar or sink over time.

I do know that “FB” (Facebook’s official ticker symbol) will be valued north of $100 billion when it hits the public market today. I also know that Google, after 8 years of non-stop success and growth, is worth about $200 billion today.

Think of everything that Google has done right for almost a decade. Then think about Google being valued at only twice that of Facebook. Does this add up for you?

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