Last Thursday, about 24 hours prior to the initial public offering, I posted on what I thought would happen on the opening day. I argued that this was the most pre-priced IPO in history, with transactions in the private share market providing information on what investors would be willing to pay for the stock. That was the basis for my view that those expecting a large jump on the opening day were likely to be disappointed and that this would be the Goldilocks IPO, with a 10-15% bump at open.

I also felt that the stock was overvalued by about a third and that what happened on the opening day would be revealing not just for Facebook, but for all social media companies. The stock did open up about 12% and faded very quickly to the offering price by the end of the day. In fact, without active support from the investment banks, it would have dropped below. In the last few days, the stock has cratered, declining to about $32 at the time of this post. Here are the lessons I am taking away from this process:

I was inspired to write this post due to a certain IPO that occurred in my neighborhood last week…

An interesting facet of the start-up scene out here is the rise of “mafias” built upon the financial success of a select few companies. The “original” mafia was formed around PayPal, which “lumped together incredible minds to form one of the world’s most important companies and whose alumni are now founders and/or financiers of some of the most disruptive new technology companies today.” In this spirit, success tends to breed (and fund) success.

In mid-February, I posted my valuation of Facebook and my thoughts on what would happen at the IPO. Since the actual offering date is tomorrow and the frenzy mounts, I thought it would make sense to revisit those posts.

1. Valuation Update
In my February 16 post on the company, I attached my valuation of the company, based on the S-1 filing as of that date. Quickly reprising that valuation, I valued the equity in the company at $29/share (assigning an overall value of about $72 billion for Facebook's equity), with the following key assumptions:
a. Revenues growing to $44 billion in ten years, with a compounded revenue growth rate of 40% for the next 5 years, fading down over time
b. A pre-tax operating margin of about 35%, higher than Google's 30% and on par with Apple
c. Reinvestment (in internal projects and acquisitions) that generate a $1.50 in revenue for every dollar in capital.
d. A cost of capital of 11.42% initially, fading down to 6.50% in steady state

So, what have we learned about Facebook in the last three months that may change this valuation?