The Facebook initial public offering is upon us and the result is nothing even remotely spectacular. In fact, if I had a dog in that fight, I may have been driven to pull a Michael Vick. The shares are up a scant eighteen cents on each initially priced at thirty eight dollars share. That’s an increase of less than half of one percent. Typically, an IPO is good for a ten percent increase in its first day. And although the share did jump as high as forty two dollars, it obviously could not hold that value.
But compared to the hype? Facebook was supposed to have been the second coming if a financial Christ. Mark Zuckerberg was to the youngest zillionaire ever to get a gazillion dollars with milk still behind the ears. For the past three days NPR has been reporting that Facebook was used by one out of eight people on the planet. Only breathable air and drinkable water had more users. Anybody with half a brain and a half billion dollars was supposed to have been stupid not to make an investment so that they can get that other half billion. The Facebook IPO was supposed to be the next best thing to investing in the sliced bread.
It has been estimated that Facebook was worth just over a hundred billion dollars. That’s a serious sum of money. But what’s kind of interesting to me is that if the company is worth a hundred billion dollars, what was the point of raising a hundred billion dollars to run the company?
If I owned Facebook and needed a hundred billion dollars I think I’d just put the company in hock for a loan. If banks believed half the hype over Facebook’s worth, I would’ve been able to borrow at least fifty billion dollars. And then once I borrowed that money, then what? What does Facebook need with another fifty billion dollars? Are they creating more jobs because they’re the job creators? Nope. Although I’m not privy it’s a fair bet that the company has all the revenue to hire all the engineers, software developers, business analyst, marketers, and business executives it needs with the allowance Mr. Zuckerberg gets from his cash cow. Do they need to purchase any more assets like a new office building or a bit more office furniture? That’s pretty doubtful as well. Even if they bought their office furniture from the same company that furnished Saddam Hussein’s most luxurious palace they’d wouldn’t scratch the surface of their petty cash. What was the point of all that money changing hands today?
In essence, all that money was used to pay a small group of people, Mr. Zuckerberg and the rest of the previous Facebook owners, for the privilege of letting other people make money on the future profits of the Facebook, Inc. A small group of people get an influx of cash immediately. A larger group of people are betting that they’ll get their return on their investment in the future. And considering how Facebook came so far so fast, people are betting that the privilege of being in the loop is worth the thirty eight dollars a share.
But the average joe isn’t about to get a chair at this table. This offer is only for people and entities that are already part of the financially well off. This is a game for people who already have a healthy access to revenue, be it their own money or a seriously healthy line of credit to borrow against. If you had a hundred dollars burning a hole in your pocket and you were looking to do a little investing, don’t even think you’re going the chance to buy a couple of Facebook shares and get in on this game. Only people with money can afford to make more money. The rest of us have to do it the old fashioned way, the way Mark Zuckerberg did it. We either have to roll up our sleeves and do some work, or we have be smart and think of a way to exploit others to work on our behalf since we can’t afford to pay people to work on our behalf.
However, the Facebook IPO brings to question an issue that is front and center in this presidential election year that’s riding the back of a sputtering economy; how does the average joe benefit from this? We hear that raising taxes on the wealthy will only hurt job creators and job creation. But what jobs would suffer if somebody making bank pays taxes on it? An educated guess here, where there’s little doubt that the influx of cash money would be used to make wealthy people wealthier, would be that zero jobs would be in jeopardy.
Despite today’s dismal performance there is little doubt that the Facebook stock will eventually go up, at least for the near term future. Further down the road, the company’s stock might hit hard times and take a tumble. When that day comes, company management might let decide to cut staff in order to make the company leaner and more profitable. That’s just what all the job creators do when their future profits are at stake.