Can someone please explain the Facebook IPO "Instant millionaires and billionaires" to me?

[Beau Hogrefe]

I've never quite understood how that works. How do they instantly become so wealthy? Do they physically have the cash in hand or are they just wealthy on paper? And since the stock has fallen about 10% since its IPO aren't they less wealthy? Is it possible for them to lose their money?

Ya, I know this isn't political but I figured someone in here would know.

[x]

It makes a lot of money from advertising.

Maxwell, but it will continue to gain new users and keep making money I guess. It does have a lot of users I think and there is potential to make money in other ways I'm sure.

[Maxwell]

they all own a piece of the company because they get stock in the company essentially for free before the IPO.

The day of the IPO their stock suddenly has value. In Facebooks case, $38 per share.


So basically for being a part of the company you got 10,000 free shares of worthless stock. On the day of the IPO that worthless stock was suddenly worth $38000

The stock is down about 10%, so your $38,000 is down 10%, but you still have a bunch of money.

(except these employees were getting a LOT more shares)



@X

no...they actually don't make enough money from advertising. that is why their stock is dropping.

Google makes about $30 per user from advertising....Facebook makes about $4 per user.

[loudname382]

Ads that spam the hell out of you.

[MTR 2.0]

They trade their shares for money at a set value that is theoretically based on the over all value of the company.
If they sell a lot of shares at a given price, that money can quickly add up.

[Common Sense]

Employees are often given stock options as bonuses at a discount or can be gifted the stock. IPOs are just a better chance that the value will increase after the public has access.

Wait till they see the Capital Gains taxes they did not anticipate. It forced one Facebook employee to renounce his US citizenship.

[70 year old virgin]

Funny how GM said they would be dropping their advertising on Facebook a day before it went public because it was ineffective. And yet a bunch of lemmings jumped on board regardless.

[gomanyes]

They were given facebook stock early on, so when the IPO happens they can sell it and get cash. Presto, instant millionaire.

They may, of course, choose not to sell it and hang on to the stock instead, in which case it can go down in value.

[BriteLite]

The management and pre-IPO shareholders sold some of their shares to the public in the IPO process. The provided them with real cash.

As far as the balance of their wealth goes, then it is just paper money - and they have lost some of it when the share price went down.

[Bobby Tangeray]

The stock has fallen over 15% including the small rise today. They are rich only because idiots traded them real cash for worthless stock.

See Facebook's IPO Strategy here: http://www.roberttanguay.com/news/facebo...fail-scam/

They aren't done yet, they still need to dump their shares into the market.