Quick primer: The essential logic to an IPO is that when a private company wants to mature — raise money, get respect and give its insiders a chance to cash out as detailed in this Marketplace Explainer — it shifts from divvying up its shares among employees, friends, investors, etc.
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There are long answers and short answers to why regular humans can't just waltz up and buy a share of Facebook, but the gist is that its million shares have to be divided amongst those initial shareholders first. The game is to be one of the those guys, cashing in when Facebook hits the general market on or around May 18th. Unfortunately for me, the easiest route to a Facebook share is a real friendship with a Facebook employee or to actually be a Facebook employee, and I am not a friend of Facebook.
Maybe he could help me? No, Omar gently told me, there was no third market.
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What is it? Before a company decides to go public, increasingly, people are trading those early private shares on special websites. And Facebook has been extremely active. In , for instance, the Securities and Exchange Commission gave the company an exemption from a rule that a company could only trade shares of its private stock, with the caveat that most of the shares had to remain inside Facebook. Road closed for me. Background reading on grabbing shares released in the actual IPO did not suggest hope for a financial peon like myself. The conventional wisdom is that buying IPO shares of a hot company involves being cozy with the firms that help structure the IPO deal — the underwriters.
Those underwriters, big investment firms like J. Morgan-Stanley-Chase-Bear-Stearns-Goldman-Sachs, figure out things like the initial price of the share and which firms get how much stock to offer to their typically hyper-rich investors. Facebook chose Morgan Stanley to lead the underwriting charge. Maybe Morgan Stanley would help me find a share?
I called a branch office and got transferred to a nice man, who paused at my request to buy a share of Facebook. This, after all, was awkward for him: I sounded like a lunatic. But he very sweetly told me that my chances as a poor neophyte who was not a financial juggernaut were nil.
I opened said account and began filling out the questionnaire, answering a slew of questions about whether I was related to any broker-dealers and about my trading goals and net worth. Facebook, which already has nearly a billion users worldwide, is facing an inevitable slowdown in growth.
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The real issue, analysts have said, is whether the company can keep users glued to the site and profit from them by offering targeted advertisements, particularly on mobile devices. Of particular concern, said Mark Mahaney, a Citibank analyst, is whether users are spending as much time on the site every day, considering how many more advertisements they are seeing on both mobile and desktop platforms.
Could you see users using it less? Mahaney asked. View all New York Times newsletters.
Facebook, which is based in Menlo Park, Calif. Investors were not expecting to see rosy earnings during this quarter, analysts said. Several said that the company would enjoy a grace period of sorts until early at least, but that it needed to lay out a clear road map to growing profits. But Facebook is widely thought to have other channels to make money.
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Its crown jewel is what its users share about themselves, including who they are, where they went to school, pictures of their children, political predilections and what they read and listen to. Facebook has been aggressively experimenting with how to exploit all this data for its advertising efforts. It is testing how to sell advertisements elsewhere on the Web.
And through its newest advertising tool, Facebook Exchange, it tracks the behavior of its users when they are visiting other sites and then serves up tailored advertisements when they return to Facebook.
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On the earnings call, company executives said this kind of advertising was more lucrative than others. They said they planned to introduce more of these advertisements in the mobile and desktop platforms. Zuckerberg said. But the Sponsored Stories are at the center of a legal dispute.
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In a pending settlement of a class-action lawsuit, Facebook has agreed to make potentially costly changes to how these advertisements work. The company has been aggressive in obtaining tools and talent to address its mobile challenge. In recent weeks it acquired a number of start-ups, including Glancee, a location sharing app whose creators are based in San Francisco; Face. Brian Wieser, an analyst with Pivotal Research Group, said Facebook was such a new kind of company that it was difficult to know how to measure its progress.
Because of an editing error, an earlier version of this article published online misidentified the California city where Facebook is based. It is Menlo Park, not Palo Alto.
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