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hi everyone welcome to reporters Roundtable I am Rafe Needleman in San Francisco and it has happened Facebook is now a publicly traded company is to internet IPO ever Facebook is going public today and is becoming a company worth over 100 billion dollars and this just eight years after a start in a humble Harvard dorm room Facebook's IPO will change the economics of the Internet not exactly a cash poor company before the IPO the new public funds lining Facebook's pockets will mean the social company has extra money to launch new projects and buy up companies that mesh with its mission or compete with it will the frenzy for Facebook stock last can a social network make money the way Google does which is hand over fist and is this a stock you should be buying today alright guys we're here at reporter's roundtable a special live show we have done a live show in quite a while we're going to be talking about this IPO should you buy it or not we've got a couple of great guests to talk about it first of all Jill Schlesinger from CBS MoneyWatch is joining us over Skype Jill can help sort us out with help us sort out the pros and the cons for investors interested in this IPO thanks Jill for making the time and arackliffe is a CEO of wealthfront an internet era investment advice service I hope I got that right yes I've covered the companies fascinating Andy's a venture capitalist at benchmark capital also teaches about entrepreneurship at the Stanford Graduate School of Business and he wrote about Facebook's IPO foreseen it on CNN news in February Andy thanks for making the time thank you joining us also over Skype Tom Merritt the host of the tech news Today Show on the TWiT network of course a also former ce net podcaster here for buzz out loud Tom thanks for joining us always good to be with you right and if you have a question about this IPO for this panel send it to us you can send me an email roundtable at Cena Tom or sent a tweet use at Rafe in the tweet and the hash tag pound FB IP o and hopefully I'll see it but we're gonna get started here with another guest a little Facebook stock weather report Paul Sloan is joining us here he is our exec who has been a man on the spot for IPL coverage Paul give us a sense of what's happening trafficking weather what does this mean what does it mean plane it to us how's the stock doing you know the stock is up modestly but you have to think that the bankers are in a little bit of a panic mode I mean bankers I think you can tell me Andy if I'm wrong like to see a little more of a pop and they can't exactly support a deal when it's this this large so the stock went public at 38 went public at 38 which raised higher than expected they had raised the range I guess couple days ago demand was off the charts you know people tried there was all kinds of skepticism you know bad news from General Motors ads aren't working and a lot of insiders you know taking money off the table and yet you know and the demand has been really strong and so it they pulled off an incredibly successful IPO it just hasn't hasn't popped out of it out of the gate is in 1999's no so the stock right now is at 40 point 83 which is a seven point four percent pop since since opening who makes money when a stock pops up Andy well the underwriters typically place the stock with institutional investors to begin and the intent is to give the institutions enough of a toehold position that they'll want to come into the market after the IPO goes effective and buy bigger positions but some of the institutions run so much money that it's not worth it even to have that toehold position so they're going to flip the stock and they're going to be the primary beneficiaries of that initial rise in the stock so Jill with performance like this up right now we're at 40 points 99 up seven point seven percent boy this is so exciting I can barely contain myself Jill what does this mean what is a 7 point 8 percent rise in a Internet IPO mean for the retail investor because most retail investors did not buy in a 38 so we always used to say this when I was a trader we would call them the dumb money they got in after the fact they're the ones who probably bought the shares at 42 43 when it popped earlier but for the most retail investors you know honestly chill out touch this young today I'd let things settle down or by the way I just buy an index fund which is gonna have Facebook in it and just know that even in the last seven deals done in the past year while the stocks have gone up a lot in the first day or two they're down 11% on average a month after the IPO wouldn't that be fascinating if Facebook actually fell below the offering price it would be like all the hype for nothing would be kind of fun right it is that a big deal of Facebook foes falls below offering it is for the media you're the only person here Andy who is not doesn't that have a media job what I think that it creates some artificial pressure for the management team that they have to field a lot of questions about why is the stock below the offering place but if you think about it when you sell stock you want to sell it at the highest possible price to give up the least amount of dilution and so there's a trade-off between selling it so high that that stock might go below the offering price and and then not having the pop because people think well if it doesn't go up fifty percent it wasn't a successful underwriting you know Google was perceived as not successful under I think because the stock didn't pop on the day of the IPO they did pretty well now tom you've been tracked even in this industry almost as long as I know I have you been tracking this stuff forever how exciting how important do you think this IPO is for for technology companies well it's it's one of those benchmarks that you know we've we've seen Zynga's and Groupons and Zillow's but Facebook is is one of the big companies it's the one you talk about all the time it's up there now with Google and Apple and Microsoft in at least in being newsworthy and being of interest and it's got 900 million users so it's huge I think a lot of people were keeping their eyes on this to see how a big company like that is going to fare in the current IPO market when we've seen the Groupons and the Zynga's and the Zillow's pop out go way up and then drop below their opening prices jazz Jill mentioned and would Facebook with their momentum being able to buck that we've seen a lot of mixed signals Facebook raising that opening price but at the same time General Motors coming out just a week before the IPO and saying well we're not gonna spend any more advertising money on Facebook now I may have a unpopular view here on this particular IPO but I would like your comments this whole panel's comments on this perspective which is that if a stock goes out at 38 jumps up to the low 40s and then hovers around 38 for a while it seems to me that that indicates that the stock was accurately and correctly priced that we don't want to see a stock doubling or even going up 50% the moment it goes public that means that there has been money left behind that they miss judged what the company was worth so I look at this and I think the underwriters did a good job Andy you must have worked for an underwriter I've never I know nothing about economics I'm a journalist I think that's a very fair statement and the only thing that keeps companies from pricing significantly below the fair value is they want to reduce the chance that sometime in the future the stock trades below that price but I would I completely agree with you Rafe the fact that the stock is up 8% is a testament to the quality of the job that the investment bankers have done okay I will say one thing that you know look they did raise the range so the the if we got on the original range of the stock offering before they went on the roadshow it would have been you know we would've been talking about a 20 30 percent pop so I think that probably they did price it right I'm sure that everybody at Morgan Stanley's dancing a jig right now you know they're gonna collect 176 million dollars of fees to split up among those 33 underwriters so I think probably after Facebook employees and in early investors the investment banks are gonna be the happiest today I mean for sure it helps that it's priced right when I said there was panic on the investment bankers I mean earlier today was trading right around 38 39 it wasn't exactly big pop I think that obviously was a huge success for Facebook I mean it seems perfect for them but I think from the bankers perspective they don't want they don't not want to see a falling lower I mean it just makes it they want to they want to see that the excitement's out there wave can I give you one other perspective if you're a consumer internet company or a consumer company in general and you're not on everyone's radar then having a big pop in your stock price is a really good thing to happen it means that you left a little money on the table but the marketing value of having a stock that goes up 50 or 80 percent is invaluable priceless and so if I'm a much lesser known internet brand having everyone report on the big pack in my IPO price will get me press that I never could have gotten otherwise and can build momentum in my business now if on Facebook I don't need that right so I have an incentive to price it much closer to the fair value because I don't really need that pop as much as a lesser-known brand now everything that we know about Zuckerberg says that he is very hands-on with stuff that many entrepreneurs and CEOs would not be for example booting the lawyers out of the room when he was doing the Instagram deal uh Tom what's your sense of how hands-on this particular CEO is with something as arcane as dealing with the stock market well I don't have much of a sense of it directly I don't have any direct contact with Facebook but just from watching the roadshow and and the controversy about the hoodie and him sort of bowing out of a couple of the appearances it seems like he's really more concerned with coding last night they had a hackathon to lead up to the IPO he wants to run the company he wants to work on Facebook and this is somewhat at least it seems from the outside a bit of a distraction for him that he's happy you know he's glad that they're public and they're bringing in the money but he has consolidated control of this company remember those Class B shares that current owners have pre-ipo have 10 times the voting rights he's gonna have by different accounts 54 to 56 percent of the voting rights over the company even after the IPO so I think this is something he felt he had to do he put it off as long as possible and I bet he's glad he's done with it now so you're never once you go public that's the deal with the devil you never get out of that one though do you know I mean they're not gonna bring it back can I ever have the money to buy it back from the public again so forget about it how is Facebook going to change now that it despite Zuckerberg ownership of all the voting rights essentially how must Facebook changed now that it is a public company I don't think it needs to change at all you know I think there's this misperception that in order to run a public company you have to satisfy the shareholders or bought your stock last week the best CEOs I know the most successful ones who've been able to transform their companies over time run their public companies like private companies they worry about what's best for the company over the long term not what's best for the people who bought the stock yesterday would you consider Google an example of a company that does that yeah I would think Apple as an example Veritas software was an example Adobe was an example so they they do what's right for the long-term business and they don't pay that much attention to what the short-term investors want to do and and I don't think that's a breach of one's fiduciary responsibilities just because you ignore the short term is there a lot of constituents that you have to worry about now one of speaking of short term one of the very interesting news items that broke this morning after Facebook went public was that Zynga stock fell off a cliff and in fact it looks like the stock was halted I don't know if it still halted for a while after dropping 13% of the triggers went off and they turned off trading on Zynga why would a Facebook IPO cause Zynga to drop when these two companies are basically from my estimation two sides of the same coin of the social network business I'm opening this one up for speculation because I'm fascinated by this well I mean there's only like one possibility for I'll put it by trader hat on what for a second I mean there is a possibility that people are basically putting a spread on I'm gonna go short Zynga I'm going to a long Facebook Facebook's a better value for me and I put on a great spread and a lot of times you know it's like saying I'm going long coke and short Pepsi and they think there's better value in Facebook unless there is news about Singha then we just don't know about nobody okay uh all right so let's see what's going on right now with the stock this is uh is becoming boring 63% for Tiffany I need a timpani yes Andy I totally agree that that and we've talked about this before that really it's about leadership and a good leader can navigate the company even if it's public and doesn't have to necessarily cater to the short-term interest but surely when you have so much of your company's wealth among your employees tied up in restricted stock and over time I mean it's in it it's helpful if the stock does well over the next six eight months well this is one of the interesting things here how do you manage a company that goes public and makes so many people so wealthy now granted they're not they can't cash out today if I'm not mistaken I'll talk about what it must be like if you're an engineer at Facebook and you've been there for three years you now have stock that is worth house money it's fu money right good Muslim how does Facebook keep these engineers motivated and if you are one of these engineers and if we're you you know if anybody here has had a windfall at a at a company how do you manage things Jill Andy I mean I can tell you what best practices are and I think that Facebook is doing a great job at the best practices all right number one you spend a lot of time preceding the IPO explaining that the IPO is just one step in a long term marathon that it's like you know when you graduate from college it's called commencement it's the beginning of the next stage of your life and I think that they're really really good leaders position IPOs as commencements where as many individual investors view it as a final outcome or the ultimate milestone and exit for venture it's not no it isn't no you hear about we hear about the exits all the time you're saying that the journalists the press made that up no but I can tell you that that having in the venture business for 25 years before teaching at Stanford and starting wealthfront we never called an IPO and exit never yeah I have a different perspective on this because when I was an invest investment advisor in New England I used to get hired by some of these tech companies in 1998 1999 and 2000 to come in and do face-to-face meetings with their employees who were about to become very wealthy and the great companies what they would do is they'd take me someone like me and they'd say I will pay you by the hour to sit and talk to these people about how they should not squander their newfound wealth and it was amazing you know of course some of these guys would go out and go nutty right they're gonna you see a parking lot full of Porsches but you know that may not be the culture out there but it was really astounding to see the the real differences among the types of employees some people just thought yes I've just become rich I'm going out I'm going crazy but I would say that especially as you got later in the cycle people were scared they said I don't want to squander this please help me and I think companies and especially company like Facebook there are gonna be so many people who are worth so much money you can imagine the pressure that I would have met that that you're carrying with that you know if anyone who's watching this who's got in this position don't blow it make sure you secure your financial future and of course buy something fun but it's kind of like a lottery in that way if you're gonna hit it big put the money aside that you need to do everything you want to do your kids college you know your own retirement and then of course have some fun you know remember a bunch of Facebook employees or former employees of sold stock they sold it on second markets and they have not by and large done ostentatious things with that money and I think that's a proxy for what you're gonna see from the people who remain as employees and are likely to get some liquidity after the lock ups are released in six months see it's even better they've started companies or they've invested another company now that is one of the great things about a big IPO and about a lot of people having excess resources to do things like I mean if you're Jeff Bezos you've got a lot of excess resources you launched a space program but if you have maybe you know only six figures or that you can you can take this money and invest it back into the technology economy and is that's a great thing and this is how the boom-and-bust cycles work but and this is where entrepreneurship comes from it's all these angel investors well it's not necessarily a great thing if you look at technology successes over the last 30 years the amazing thing is the number of companies that achieve great success is incredibly consistent I did a some research in 1995 and updated it in 2004 some presentations that had to give where I found that only 15 companies plus or minus 3 are created every year that at some point in their life reach a hundred million in revenue that's it nationwide and it doesn't change any year but this so the number of companies started is like a sine curve it oscillates so I think we're gonna see a lot more money coming into the angel market as a result when the lock ups come off but that doesn't mean we're gonna see more successful companies it just means we're gonna see more failed companies well it depends how you define success it depends how you define success right Instagram would not have made it onto your list agreed agreed but I'm talking about but for the economy in terms of jobs and such the number of companies that achieve critical mass or real success is very consistent and having more angel money come in isn't necessarily gonna drive more innovation as many people are positive but Instagram type successes drive a lot of those angel investments let's this begin to wrap this up by talking about where Facebook does need to innovate and where they may be making acquisitions whether there are actual company acquisitions or what are called aqua hires buying a small company out just to get the engineering talent they're mobile Tom Andy Paul Jill anybody don't want to talk about how is Facebook going to manage the move from the social era which we're in to the mobile era which we're moving into yeah that seems to be the common consensus is that Facebook needs to be in mobile effect there was an interesting Forbes article at the end of April saying that Facebook and Google are fighting the last war that they they need to be looking farther ahead and Facebook struggling with mobile is evidence of that I think what we're seeing with Instagram acquisition and with the acquisition of the lightbox folks recently is is what their strategy looks to be which is let's go out and find people who are really good at mobile bring them into the company and it's and let them loose and see what they can do Google just did that to very good effect with Google Plus everyone suspects that pulling in Kevin roses team from milk is what brought out the new Google+ mobile app which has been a fantastic improvement over what they had before so I would expect to see more of those kind of AK hires as you say from Facebook the other thing we hear that is a big area of expansion obviously we know about this is global presence the news came out the other day that there will soon be more Facebook users in India than there are in the US so how important how does Facebook make the transition to being a truly global company where the United States is just one of several markets we did a long time ago because you have you might have users but you need consumers that's what they need and what we know is that some of those economies where there's been expansion with Facebook those people aren't necessarily consumptive and especially like in a place like China or India where they are more of a saving society than a spending society we're waiting for them to become more bigger spenders and I think that is the next frontier but right now let me tell you something Chinese people say 40 to 50 cents of every dollar they make they're not clicking on ads on Facebook and buying crap on the Internet well let me give you a different perspective so everyone's talking about mobile and I think it is critical that Facebook's succeed on on mobile but we're forgetting the fact that they own the plumbing of the internet the new plumbing look at Facebook Connect think of how many websites use Facebook Connect is the way to get new people to come use their sites if Facebook wanted to they could charge a Hania login in every single website i know i would would pay facebook for to have it-- you're done well we would but you're right slight everyone's forgetting this and if they charged a penny a login for Facebook Connect which makes it a lot easier for me as a website operator to offer convenience to my users that would be a billion dollars in operating profit tomorrow so lest we forget how much of an asset Facebook has built that will continue no matter what happens in mobile all right finally advertising this is where these companies make their money this is why Google is a forty billion dollar revenue company and Facebook is under - Paul how does Facebook turn it around in the advertising space look I agree with Andy I think it's a mistake to think of this only as an advertising play I think there's so many users and there's so many different opportunities whether it's expanding Facebook Credits whether it's using mobile to get off into offers like local offers whether it's Groupon type offers there's all kinds of ways whether it's charging for Facebook Connect whether it's creating an ad network outside of Facebook which a lot of people have speculated could happen you know where they create ads where maybe you know you go to the Washington Post site and you see an ad for a restaurant and you're like huh my friends liked that one and so do all kinds of ways they can not only boost their advertising revenue but get other other revenue the question is how long it'll take to do it and whether they pull it off you know every disrupt plague Christensen wrote of a book called the innovators dilemma which really made an impact on me and he coined the term disruptive technology which is often misused but disruptors always sell their product for a lower price but they sell more of it so if you think about this in Honda motorcycles versus harley-davidson mini-mill steel mills if you look at Facebook ads Google text ads versus Yahoo display ads well Facebook ads have a fraction of the price of a Google Ad so people always think oh there are a terrible advertising company well at the time Google went public at the same age I think Facebook has more sizing revenue then did Google so turn around why are we talking about turnaround if they're doing better than Google did at the same age that's one way of looking at it actually sorry Jill any final advice for people who are looking at this stock hovering around forty one dollars and thinking oh I got to get in now before it goes up to sixty what do you think yeah I think really there's no reason to make a trade now you know and and by the way you know for most people who are out there managing their financial lives you gotta remember you're not building a portfolio of 50 stocks you're not a money manager and those guys can't even beat the index stick with the index and by the way I don't want to be a buzzkill I know everyone is so psyched about this there is a huge problem lurking in our markets right now and it's called Europe and it's called Greece so before you go jump in and start getting all whacky about Facebook make sure you've got a diversified portfolio because it is going to be bumpy in the future and the best place to do that thank you for your time your payment for your time is tell us about well friend really briefly ten words or less well we're a an online investment management firm that helps young people initially who work in technology to have their money managed in a diversified portfolio of very inexpensive index stocks of the type that Jill described and we do it at a tiny fraction of the minimums of the high-end wealth managers like Goldman Sachs and for a tiny fraction of the fees thank you always great Andy to hear your your input on this stock and others in the market in general and of course is a CEO of wealthfront Tom Merritt is the host of tech news today Tom any final words on this or other exciting public company news well Eric Mac has a great article I'd seen it today about a programmer who's doing Facebook IPO day closing price comm you if it's already at the end of the day that it's too late to look at it but by scraping Twitter he's predicted that the closing price will be $54 but then we also have John Perry Barlow of the EMF predicting that the stock will close at $32 so I guess by the end of the day we'll know whether Twitter or John Perry Barlow are better at predicting the future you know how to make money on Facebook stock is run the betting pools don't touch the money Jill is Jill you're at CBS MoneyWatch tell us what you're up to I am covering this story I'm covering Europe and I'm really all over this JPMorgan Chase story which is juicy and gossipy here in New York please love that kind of story and you can follow me on Twitter at Jill on money and you know if you've got a financial question I do host a weekly call and radio show kind of like dr. Frasier Crane for your money so let me know if you had a question my money is neurotic I'm telling you that right yeah executive editor here at seen that news Paul what's on for today facebook facebook facebook Facebook what's the okay um you know whatever you can you can find Paul's it'll be over soon it will you goodness alright guys hey everyone thank you so much for making the time to come in thanks all for watching Thank You Kelly for producing you can find all the news of Facebook and all those other tech companies on CNET news I am Rafe Needleman this is reporters Roundtable thank you you