How Facebook’s IPO compares to Google’s

Marketplace Contributor May 18, 2012

David Brancaccio: So here’s how it’s going to work at Facebook: at 11 a.m. Eastern — 8 a.m. Pacific — Facebook stock will begin trading on the NASDAQ. That’s when mere mortals — not just special people who got ahold of the stock in advance — can buy and then maybe sell. Given all the buzzexperts say it could start at something close to $38 a share. Critics insist there is hype at play here.

Which reminded Marketplace’s senior business correpondent, Bob Moon, of a similar offering back in 2004, when Google went public.

Bob Moon: Back then, a few analysts worried that Google’s revenue growth was slowing — just like Facebook’s latest quarter. But as Google began trading, Marketplace’s host at the time, David Brown, noted that the stock opened at $85, and quickly “popped” by $15 more.

David Brown: Admittedly, this thing was over-hyped, and then the poo-pooing began. “The emperor has no clothes,” was the general line. Well, it now appears the emperor can afford to go on a shopping spree.

Much of the skepticism back then stemmed from doubts over Google’s earnings potential — just like those now swirling around Facebook.

Wedbush Securities analyst Michael Pachter recalls the search giant wasn’t offering much insight into its ad model.

Michael Pachter: Google had not yet proved out what advertisers would be willing to pay for certain keywords. A lot of investors were skeptical the rates would continue to rise as they have.

News stories also questioned whether Google’s popularity would inflate its stock value — a concern echoed today about Facebook.

At the University of Southern California, finance professor Larry Harris predicted its shares would be oversold.

Larry Harris: Simply because there are so many people who absolutely love Facebook, and who will be buying it without regard to price.

There are also some sharp differences. Google’s wide-open auction meant anybody could bid for its IPO shares. Facebook is distributing some stock through retail brokerages, but Wedbush’s Michael Pachter says in reality, the big-bank underwriters favor big-money clients.

Pachter: Retail investors are going to be lucky if they get a share.

Another key difference: For its IPO, Google sought to deflect privacy concerns by essentially saying “trust us,” making its motto,  “Don’t be evil.” Facebook is vowing to make its privacy policy as clear as possible, and calls the issue a key risk factor for its business. Indiana University law professor Fred Cate says there’s a much tougher playing field now.

Fred Cate: It raises the question of, what is Facebook going to be able to get away with? Certainly the privacy and security concerns are more likely to be different.

And perhaps the most striking difference: Google’s IPO raised more than $1.6 billion, which seemed rich in 2004. Facebook is raising more than 10 times that.

I’m Bob Moon for Marketplace.

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