The Ripple Effect of Facebook’s IPO: Will Investors Get Soaked?

Tomorrow, Facebook will go public in what’s expected to be one of the largest IPOs in history, with up to 484 million shares up for grabs at $38 per share, a total that should translate into a fresh $18 billion for the 8-year-old company.

Mark Zuckerberg will be playing it cool. He’s eschewing a trip to New York in favor of ringing Nasdaq’s opening bell remotely from Palo Alto. He’s also reportedly planning a company-wide, all-night hackathon tonight to remind everyone that Facebook is about building things (and all but guaranteeing that its soon-to-be-rich employees will be completely delirious by morning).

But there are likely plenty of companies, both public and private, that are already partying like its 1999. After all, with an offering this massive, the question isn’t who else will benefit but just how extensive the ripple effect will be.

On the public company side of things, it’s a good bet that Zynga will look more attractive in the wake of Facebook’s offering. Consider that roughly five percent of Zynga’s users spend money to buy virtual goods like tomatoes and tractors, and roughly 20 percent of Facebook users play Zynga games. Right now, that means that only 1 percent or less of Facebook users buy virtual goods on Zynga’s platform.

But as research analyst Michael Pachter of Wedbush Securities points out, the inevitable growth of Facebook Credits, a virtual currency that allows Facebook to extract a 30 percent “tax” on virtual goods purchased made on its platform, will undoubtedly benefit Zynga. “If you give 900 million users a way to slap down a credit card in exchange for Credits,” says Pachter, “it’s easy to see how that 1 percent of Facebook users on Zynga’s platform becomes two percent,” doubling Zynga’s revenue.

Pachter also sees Facebook’s IPO goosing Internet radio service Pandora’s stock. “Pandora and Facebook are very different models,” he notes, but both are ultimately popular gathering places whose business model centers on advertising. (Notably, Pandora’s shares are already up more than 20 percent from their Monday closing price of $9.24 as of this writing.)

Others see different beneficiaries. Herman Leung, a senior internet analyst at Susquehanna Financial Group, thinks Facebook should make “Google’s multiple look a lot cheaper.” Google, after all, is pulling in almost 10 times the amount of online ad revenue that Facebook sees – or $30 billion annually. And “while Google is more mature, it’s still growing net revenue at 20 percent per year,” says Leung.

Leung sees another winner in LinkedIn, which might strike some investors as a bargain because its revenue is growing at a faster clip than Facebook’s. (Facebook’s revenue for the first quarter was up 45 percent compared to the first quarter of 2011; LinkedIn’s first quarter revenue grew 101 percent over the same period.)

And don’t forget certain enterprise software companies that may also receive more investor attention following Facebook’s IPO, says Kirk Materne, a managing director of equity research at Evercore. Among other companies, he suggests that Salesforce and Jive are positioned well, given that “as Facebook’s influence over consumers grows, more and more businesses will have to figure out how to integrate social into their business processes.” (Both companies make so-called “social collaboration” software.)

Of course, the biggest beneficiaries of a public Facebook could be the many private, social-media related companies waiting in the wings: think Twitter, Tumblr, Pinterest, Spotify, and Airbnb, to name just a handful. (It’s probably no coincidence that Pinterest is reportedly right now closing on a new, $120 million round of funding that will value the company at $1.5 billion.)

Those who question just how potent a big IPO can be might consider what happened in the summer of 1998. As John Fitzgibbon, founder of the research firm IPO, recalls it, “The stock market was on a roll, with Nasdaq closing at its then all-time high that July.” Then economic turmoil tanked the market, allowing just three deals to get priced through late September. As it happens, one of them was eBay. Not only did its shares triple on their first day, but they kept soaring, pulling the market along with them for another 18 months.

Fitzgibbon suggests that Facebook’s IPO has whet investor appetite to such a degree that another IPO frenzy may be just around the corner. “The wolves are out there,” he says. “They’re howling to be fed.”

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