Facebook filed its hotly anticipated initial public offering Wednesday afternoon, but for the average investor, the news that shares of the company will soon hit the market doesn't mean much.
The filing signals that the world's largest social networking site is looking to raise $5 billion. Those who want to buy shares will have to get in line: Morgan Stanley and other big banks working on the sale will be first to get their hands on Facebook shares. These banks are involved due to their ability to sell the highly anticipated stock to institutional investors, like money managers. Chances are that shares will go quickly, according to Gizmodo.
Who stands to gain from the offering? Facebook's early investors currently own stake in the company and the value of these shares will be determined by the IPO. In its IPO filing, Facebook will put a sticker price on itself -- estimating the net worth of its assets (including its gargantuan trove of personal data) and projecting future growth for the company.
It's the job of the Securities and Exchange Commission to scrutinize this data and determine the legitimacy of Facebook's valuation. Then, it will likely be three to four months until shares of Facebook begin trading on the stock market.
Last January, an investment by Goldman Sachs' valued the company at $50 billion. According to the New York Times, Facebook -- which brought in $3.7 billion in revenue in 2011, according to Wednesday's announcement -- is expected to be valued at $100 billion when its IPO is made.
If Facebook is in fact valued at $100 billion, original shareholders will see their ownership value double what it was in January 2011. Early investors can choose to cash out on their shares when Facebook stock is sold on the market.
Buying shares of Facebook after the IPO will mean making a bet on the future performance of the company.
According to SmartMoney:
History says don't buy in. Most IPOs lose money, studies show, which makes sense, because they represent a highly informed class of investors deciding to sell. And most of last year's dotcom IPOs -- including LinkedIn(LNKD), Groupon (GRPN), Zynga(ZNGA) -- sit solidly below their first-day opening prices.
Of course, this logic doesn't hold true for Google, which has seen its share price continually increase since its IPO in August 2004. Today, shares of Google are worth five times more than they were when they initially hit the market.
At the end of the day, Facebook's IPO filing has few takeaways for users and interested investors. By filing with the SEC, Facebook will have to be more transparent about its finances. However, the company will be under increased pressure to maximize profits, and in turn, "the use of personal data is likely to increase, only raising privacy concerns," according to The Guardian.
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