Facebook Files for IPO, Sheds Light on Its Business
Facebook, which is barely eight years old but will record its 1 billionth registered user sometime this spring, filed an application Feb. 1 with the Securities and Exchange Commission for an initial public offering of stock potentially worth $10 billion or more.
When the stock is issued at some point in the near future, Facebook--with an expected post-IPO valuation in the neighborhood of $100 billion--would represent the largest stock market debut for a U.S. company in nearly four years. In comparison with another prominent IT company, Google banked $1.7 billion in its Aug. 19, 2004, IPO.
In the history of U.S. business, Visa, General Motors and AT&T Wireless are the only companies to have IPOs totaling more than $10 billion.
In the filing, Facebook was predictably vague and did not specify several key points: the date of the sale, how many shares it would offer, what the projected price range would be, and which exchange it would use.
None of that information is required for the filing of the initial IPO request, but because of the size and scope of the offering, Facebook will be under pressure from potential investors to answer those questions as soon as possible.
Date of Sale Not Specified
As for the actual sale date, Facebook said it would be "as soon as practicable after the effective date of this Registration Statement." It is widely expected that Facebook will trade on the IT-dominated NASDAQ exchange, and some analysts have predicted that the starting sale price will be in the $90 to $150 range.
Facebook did say that it intends to trade its shares under the ticker symbol "FB." Morgan Stanley will lead the IPO, with Goldman Sachs assisting.
It could be weeks or months before the stock is ready to sell. Early estimates from a year ago by Wall Street IT analysts put the sale date in the April 2012 time frame, but most insiders now believe it will be much sooner than that--perhaps in February.
In the publicly available S-1 SEC document, Facebook revealed a number of business metrics, including that it banked revenue of $3.7 billion (up 47 percent from 2010) with net income of $1 billion in calendar year 2011.
The social network also revealed that it services an average of 845 million users every month, with more than half that number using it daily and about the same number accessing the network via a mobile device.
Zuckerberg's Letter to the SEC
In the S-1, CEO and founder Mark Zuckerberg, who owns 28 percent of Facebook and will be worth $20 billion to $25 billion after the sale, included a personal letter explaining Facebook's purpose to the SEC.
"Facebook was not originally created to be a company," Zuckerberg wrote. "It was built to accomplish a social mission: to make the world more open and connected. We think it s important that everyone who invests in Facebook understands what this mission means to us.
"We think a more open and connected world will help create a stronger economy with more authentic businesses that build better products and services. As people share more, they have access to more opinions from the people they trust about the products and services they use. This makes it easier to discover the best products and improve the quality and efficiency of their lives," Zuckerberg wrote.
The IPO revealed that Zuckerberg received $1,487,362 from Facebook in 2011.
The effect of Facebook going public will impact a growing number of companies that depend on the reach of the social network. Zynga, for example, which operates a large number of the peer-to-peer social games on Facebook, provides about 12 percent of Facebook's revenue. Zynga has been highly successful for several years before it went out with its own IPO in December.
Yammer CEO David Sacks told eWEEK that the IPO "validates what the trend has been for several years now and what we really believe, which is that everybody's going to have a social networking account of some kind. One of the downstream effects for us is that we think that employees will want to communicate in this way at work, and not just in their personal life."
Yammer provides a secure Facebook-like social network for use inside enterprises.
Facebook's IPO might not have all that much impact on Yammer, which is already growing fast on its own.
"Sales have tripled (in the last year), and our user base has grown from 1.5 million users to 4 million users, so it's been rapid growth," Sacks said. "It's actually the same growth rate as LinkedIn in its early years; they now have about 100 million users. It's the same sort of trajectory."
GraphEffect, which makes software for Fortune 500 companies to manage their social network advertising, was one of the first companies to beta-test Facebook's ad technology.
Talking about the "knock-on effects of the 'Facebook economy'," CEO James Borow said in an email that "there are thousands of companies (GraphEffect is but one) that are dependent upon FB for their own growth. Facebook is expected to invest more in the tools they use to let other companies connect to them, and that will drive both FB's growth and the advertising industry's."