Facebook will soon start the ambitious journey of transforming itself into a publicly-listed entity. According to market estimates, the world’s most popular social networking platform is roughly being valued between $75 and $100 billion. It has already filed the papers for the IPO with the US financial watchdog. The subsequent flotation exercise slated to take place some time later this year would help it raise close to $10bn.
As widely reported, this is going to be among the biggest ever share sales witnessed on Wall Street. It should quite easily dwarf the issue of $1.9bn by Google after the company went public seven years ago. Of course, the issue size would still be some distance short of the overwhelming $20bn raised in November 2010 by General Motors. Yet, the reported valuation can make it one of the world’s biggest IT firms by market capitalization.
‘Facebook a brilliant achievement, but $75-$100bn? Would make Apple look really cheap,’ media baron Rupert Murdoch twitted, echoing the excitement surrounding it. Facebook’s gradual but well-orchestrated move touched off a frenzy among prime Wall Street banks to lead this high-profile and highly profitable deal. Morgan Stanley is going to be the lead underwriter for the share sale. Rumors of its initial public offering have been in the air for last several months, though the ultimate valuation Facebook will draw is anybody’s guess. Describing it as a ‘bittersweet moment for the US’, The Telegraph’s American business editor wrote:
“Anyone dipping into Facebook’s prospectus will be bombarded with evidence of the meteoric growth Facebook has achieved over the last three years. It’s an echo of the early years of other US companies, such as Ford and General Electric, that reshaped the world. But there’s one important way in which Facebook differs from its predecessors: it’s not creating as many jobs.”
The social site was launched in 2004 by entrepreneur Mark Zuckerberg along with other fellows at Harvard University. Since then, it has grown into a highly prolific, prominent and popular online platform. Having achieved an astounding worldwide reach, it makes money largely through advertising. In spite of early skepticism about whether social sites like Twitter and Facebook would ever be able to monetize their vast user base, ad revenue has trickled in.
As a private company, it doesn’t need to make its accounts public, but reports circulated in January last year referring from a document of Goldman Sachs to its key clients pegged its net profit at $355m on revenues of around $1.2bn in the first three quarters of 2010. However, cutting through the hype, The Forbes columnist Peter Cohan argues that Facebook’s IPO is rather irrelevant from market perspective. He mentions:
“It is popular in the media to compare it to that of Google whose price has risen nicely since its 2004 IPO from $84 to $580. That 30% compound annual growth is good – but Google trades 19% below its 2007 peak of $715. To be fair, there is a bit of good news for those hoping that Facebook stock will climb after it goes public. That’s the only glimmer of good news for why the IPO might breathe some life into the business of VCs and tech entrepreneurs.”
Inability to transform the manner in which companies operate their business means that Facebook will remain merely a niche or isolated phenomenon in the broader economic scheme, he avers.
