Media Relations Specialist
Media Alert: Jan. 31, 2012
UMD Business Expert Available to Analyze Facebook IPO
COLLEGE PARK, Md. - Gerard Hoberg, associate professor of finance for the Robert
H. Smith School of Business at the University of Maryland, is available to discuss
how the anticipated Facebook IPO will affect the company and discuss the factors
that would make Facebook or any IPO a good investment vehicle.
The IPO filing with the Securities and Exchange Commission would be followed
by Facebook’s initial public offering in about three months.
Indicating the social networking company’s value, Smith School professors Il-Horn
Hann and Siva Viswanathan released a study in fall 2011 finding
create more than 182,000 new U.S. jobs worth $12.19B-plus.
For insight to the Facebook IPO, contact Hoberg at 301-405-9685, 301-405-9685
(mobile) or firstname.lastname@example.org. His personal website is
Hoberg’s initial response to the development includes ramifications for Facebook,
plus insight to what makes for a solid IPO:
How will going public change Facebook?
Facebook will dramatically change its access to capital markets, and in other
ways, its public perception. Publicly traded firms can issue equity to fund new
investment, or to fund acquisitions. It can also use its own stock as a way to buy
other firms that it may wish to merge with. These issues increase its flexibility,
and allow it to be more agile in its market. For example, if Facebook sees the need
to merge with another large firm like Yahoo 1-2 years from now in order to stay
competitive, a stock swap merger permits the transaction to go through without having
to raise a substantial amount of cash, which would be prohibitive for a private
firm. On perception, you will have many institutional and retail investors reading
its financials, and making investments. This will increase the publicity received
by the firm, and perhaps also public confidence in the strength of its business
model. In turn, this may help to secure its market share.
What factors would make the Facebook IPO a good investment?
Foremost among factors is the IPO underwriter. History shows that IPOs underwritten
by strong names – like Morgan Stanley (as being reported) -- tend to be successful
investments. Secondly, consider its competitive position. Facebook appears to be
strong and well established. Finally, there is the question of potential growth.
Facebook will already be valued quite highly as a whole-firm. How much upside is
left? I see many of the pros and cons as well-balanced here, and although the first
day return for Facebook will likely be substantial, its long-term outlook may be
average for the industry.
Are IPOs, in general, good investment vehicles?
Broadly, evidence from the 1980s and early 1990s shows IPOs as poor investments
on average. However, more recently, this no longer appears to be the case. At this
point, they perform about as well as their more seasoned industry peers that are
already publicly traded. There are two issues to note, however. First, IPOs perform
better when the underwriters backing the transaction are more prestigious. Second,
they perform better when insiders are selling fewer of their own shares in the IPO
(i.e., When most or all of the IPO proceeds are used to fund new investments and
not insider sell-outs). A key challenge for investors is the worry that the manager
of the IPO firm is choosing to sell when the market places a high value on stock
in its given industry. If so, IPOs are less likely to be good investments.