February 1st, 2012
06:08 AM GMT
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UPDATE: It's official. Late Wednesday Facebook filed paperwork for a $5 billion IPO. And the company reveals for the first time how much cash its making. Read more here.

(CNN) – The Facebook IPO, or initial public offering, promises to be “the holy grail” of tech IPOs, possibly the biggest ever.

Reports in the Wall Street Journal and New York Times suggest the company is seeking to raise $5 billion – more than double Google’s $1.7 billion IPO in 2004, which remains the largest tech IPO in history, according to Renaissance Capital.

Facebook readies for blockbuster IPO

CNN’s Christine Romans explains IPOs, and what it means for Facebook.

What’s an IPO?

An IPO is when a company, whether It's a mom and pop store or a social network conceived in a Harvard dorm room, can attract vastly more capital to grow its operation.

You can get investors to pay for shares of your company which are publicly traded on a stock exchange like the NASDAQ or the NYSE.

Investor reaction to Facebook IPO

Why go public?

Money. With public investors putting money into your enterprise, it allows you to raise money quickly. Also, as is apparently the case with Facebook, it was heading toward a legal limit of more than 500 private investors, which U.S. law then requires the books be opened for public scrutiny.

Why stay private?

One of the downsides is when you are a public company you are scrutinized by the government. You have to every quarter file your numbers, your balance sheet to stock exchange regulators.

If you're a private company you don’t have that kind of scrutiny you don’t have investors selling their stakes in your company if you have one or two bad quarters.

Who can buy shares?

Eventually it’s everyone – such as through mutual funds or bought outright by individual investors, say in an E*TRADE account or something.  But at an initial public offering, it's the big names who get in, and original investors and founders of the company get a good shot to buy more, if they desire.

Once the stock starts trading – which could be several months down the line – it will answer one big question that has hovered over the internet giant: How much is the company worth? Some say it could reach $100 billion. Also we will know how much money the company makes, and a more transparent sense of Facebook's business strategy.

soundoff (44 Responses)
  1. Dawn

    wow that was poorly written...

    February 1, 2012 at 1:30 pm |
  2. john doe

    IPO: Idiotic People On-line

    February 1, 2012 at 1:42 pm |
  3. John

    I couldn't agree more with Dawn. The quality of writing at CNN just seems to continue on a downward spiral with each article. Have all the editors been fired?

    February 1, 2012 at 2:31 pm |
  4. Alex

    better review the writing after post it to this page.

    February 1, 2012 at 3:30 pm |
  5. Alex

    revies before; post it after...

    February 1, 2012 at 3:31 pm |
  6. Jon

    Mr Voigt, what you've just said is one of the most insanely idiotic things I have ever heard. At no point in your rambling, incoherent response were you even close to anything that could be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points,and may God have mercy on your soul.

    I choose businessss ethicsss....

    February 1, 2012 at 3:39 pm |
  7. FM

    I usually don't post comments but I had to here: what horrible writing. It doesn't even begin to explain what an IPO is.

    February 1, 2012 at 3:54 pm |
  8. rovi

    Facebook guys want to cash out now while Google+ is still small. They're wetting their pants.

    February 1, 2012 at 3:54 pm |
  9. Alex Povolotski

    Oh well... yet another bubble. Same thing will happen as with Groupon IPO. It'll go down as a rock a week after.

    February 1, 2012 at 3:57 pm |
  10. Alex Povolotski

    Technology is a thing of the past now. It has become a commodity. Drugs and guns have always brought money in. People will always get sick and wars will always be waged. Invest in something stable.

    February 1, 2012 at 3:58 pm |
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    Strangest way to the marriage application


    February 1, 2012 at 4:07 pm |
  12. akaray

    Pathetic! If one has to do something, why not put in some effort and do it right?

    February 1, 2012 at 9:06 pm |
  13. MSH

    "whic remains the largest tech IPO in history" – typos aside, even an average high school student would have written a better article!

    February 1, 2012 at 11:06 pm |
  14. Chuuk Islands reader

    The article was short, to the point and if you read carefully you learn that an IPO is the INITIAL PUBLIC OFFERING. Want more, do a search for the depth of details that feed your hungry soul. For those of us that are very busy, we like short to the point sidebar stories. Thanks CNN

    February 4, 2012 at 10:56 pm |
  15. ss

    facebook is for fools

    fools use it

    fools will lose on the ipo

    to quote Zuckerberg when asked why people would want to post their PRIVATE emails on the web

    "dumb @ucks"

    March 2, 2012 at 1:03 am |
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