Facebook Loses Out on Insiders, GM Advertising Dollars Before IPO

Facebook Loses Out on Insiders, GM Advertising Dollars Before IPO

Wednesday morning’s market news kicked off with an updated Facebook filing. The company plans to increase the number of shares offered in its impending IPO to 421.2 million, up from 337.4 million. This rise is from individual shareholders desiring to get rid of a higher number of their shares; it doesn’t include Facebook selling more shares.

In addition to the bump in shares, on Tuesday Facebook increased the share price range of $34 to $38 per share; the IPO could now bring in $18.4 billion should all of the allotment be sold.

Facebook’s IPO has drawn a lot of interest from retail investors and according to The Wall Street Journal, the research firm IPO Boutique reiterated today that with the the higher price and additional shares, the offering is “massively oversubscribed.” This could lead to gains on the first day thanks to investors trying to get in on the deal.

But for insiders, the offering is different: they’re ready to cash out now. The Wall Street Journal produced an interesting list.

Facebook’s directors, including James Breyer and Accel Partners, plan to sell 49 million shares, up from their 38 million shares. Venture investor Peter Thiel will now sell 16.8 million shares, up from his initial 7.7 million shares.

On the fund side, DST Global will get rid of 46 million shares up from 26.3 million. Other notable sales will include Goldman Sachs (NYSE:GS) selling 28.7 million, Greylock Partners at 7.6 million shares, Mail.ru Group Ltd with 19.6 million shares and Tiger Global Management planning to sell 23.4 million shares as compared to 3.4 million shares.

GM Pulls Advertising

Meanwhile, while Facebook may be losing some insiders, it is also losing advertising dollars from General Motors (NYSE:GM). On Tuesday, the automobile company said it will discontinue paying Facebook $10 million in advertising.

The Wall Street Journal reported that “GM’s marketing executives decided Facebook’s ads had little impact on consumers and it was not getting any discernible benefit from the spending.”

But what does this really mean? Facebook’s business model may have problems.

Forbes contributor Paul Cohan opines about this and writes that Facebook’s model is weak as it doesn’t create enough value for its different customers. Furthermore, it doesn’t capture a lot of value and it hasn’t shown it can renew value.

With GM’s exit, its $10 million wasn’t bringing a return and that Facebook hasn’t measured return well for an advertisement on an e-commerce transaction, according to Cohan. Furthermore, for GM and maybe other companies, Facebook falls short showing advertisers their money is being spent well.

GM’s actions also suggest additional problems with Facebook: it needs to make and gain value. To do so, it needs to make advertisers want to spend money. Facebook will have to take personal details from its members to maximize advertising and give users a good experience to stop its growth slowdown.

For now, Facebook plans to put its eggs in the mobile basket.

The company saw its profits drop 14 percent in the first quarter and according to Cohan, from Facebook’s Price/Earnings to Growth ratio, the opening valuation would be $104 billion ($38 per share)–a number too high.

Rumors are swirling of Asian over subscription and Cohan therefore sees Facebook closing at $100. This will bring a market capitalization of $274 billion, again, a number too high given Facebook’s problems.

How do you think Facebook’s stock will fare in the IPO?


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