Facebook has millions of "friends" -- but when the company goes public this spring, the big question will be whether shareholders are among them.
Investors are hungrily anticipating what is expected to be the biggest initial public offering for a tech company in history. But the imperviousness to criticism that helped the website become a global sensation can be a drawback for a publicly traded company.
As the IPO hiccups of Groupon, Zynga and others have demonstrated, there are big differences between a Silicon Valley supernova and a Wall Street darling.
When Mark Zuckerberg and his cohorts open their books to the public, they will face a new and less-patient constituency of investors, many of whom will be more interested in short-term share price than in building a constantly evolving company.
Zuckerberg has demonstrated his business acumen with Facebook's growing revenue and user base of more than 800 million people. But investors might prefer a CEO who is more press-friendly than the sweatshirt-wearing, socially awkward Zuckerberg. They might also be put off by challenges from privacy watchdogs and major players like Google.
"After a company goes public, it’s subject to the whims and desire of its shareholders," Michael Yoshikami, founder of the investment firm YCMNet Advisors, told TheWrap. "That is really the cost of getting public money -- but they’ve concluded they need it to continue their expansion and they’re willing to live with the consequences."
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A Facebook spokeswoman declined to comment for this story.
Investors gobbled up public offerings from Pandora and LinkedIn during the first half of 2011, but following the debt ceiling stalemate in Congress and the European financial crisis, the market for IPOs iced over. In a volatile stock market, timing is essential.
"An IPO is really the tail of the dog, and the overall market is the dog," said Bob Gelfond, CEO of the hedge fund MQS Asset Management. "There’s a lot going on in the global macro economy that continues to dominate the news. Even though companies can tell great stories, if the macro environment deteriorates, all bets are off."
If Facebook miscalculates, it could lose billions.
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"Last year, we saw that the windows for IPOs open and close very quickly and a company is going to be carefully scrutinized by the [Securities and Exchange Commission] and investors, so a company has to have its game on before it enters the marketplace," said Steve Hobbs, a managing director at Protiviti, a risk-management consulting company that specializes in IPO preparedness.
It also helps if a company can develop a thick skin before going public. Zynga and Groupon have suffered through withering press coverage and analyst criticism about everything from their accounting practices to their stock compensation packages.
