After years of waiting, one of the most widely-discussed IPOs ever -- that of social networking giant Facebook -- is all but certain to happen this year as the company is forced to make public disclosures in the coming months.
The exact timing of Facebook's IPO has been the source of much speculation, but according to the Wall Street Journal, the wait may be over next week.
Its sources say that papers could be filed with the SEC as early as next Wednesday, with the company seeking to raise as much as $10bn at a valuation of $75bn to $100bn. In raising $10bn, Facebook would be the richest technology IPO ever. As the Wall Street Journal notes, the largest tech IPO ever to date was that of Infineon Technologies, which raised $5.9bn at the height of the .com bubble in 2000.
Obviously, there's a huge difference between $75bn and $100bn, and industry observers will be closely following just how high a valuation Facebook can command. But one thing is certain: Facebook will go public with a valuation few could have imagined a few short years ago.
The big question, of course, is whether Facebook's IPO marks a momentous event in the company's rise, or whether it represents the company's peak. Skeptics of social networking's importance are hard to come by; today there's a broad consensus that social networking is here to stay. But that doesn't mean questions don't linger about Facebook's future.
The massive growth of the company's user base can't continue forever, and there's always the risk that large portions of its user base will eventually tire of the service, particularly as it evolves. Furthermore, while Facebook does have revenue and profit, current revenue and profit alone doesn't seem to justify a valuation of even $50bn. Clearly, for the company to sustain the valuation it will have when it goes public, it will need to monetize at a level far greater than it is doing now.
Reader comments (2)
Co-founder & COO at Greenlight
7:41PM on 28th January 2012
From a purely academic perspective, removed from talks of bubbles and hype, this is incredibly interesting, as Facebook can't really accumulate dramatically more users, so its valuation at this stage needs to be based on, firstly, its current revenue and, second, how much more revenue it can secure from that user base in the near future.
In the first instance, Facebook makes about $4bn a year (we estimate, as its still a private company) so a valuation of $100bn would be a 25x multiplier on revenue, which is a HUGE multiplier. Infineon Technologies, back in the day, if I recall correctly, IPO'd at a 1x multiplier on revenue.
This means that a valuation of $100bn needs to be justified by a huge increase in revenue by Facebook over the next few years - at least 10 times more. 10 times more revenue would result in it equalling Google's revenue today and therefore also matching Google's valuation from a few years ago of, wait for it, $100bn. A 10x increase in revenue over a reasonable time period sounds tough, to say the least..
The problem I guess is that Facebook can't grow revenue massively by increasing its user numbers, because they've hit a ceiling there. This means that they need to make significantly more revenue from each current user - but can they do that without a) intruding on people's privacy to get more ad revenue to the detriment of public trust and therefore loyalty, and b) not destroying what has made them popular thus far (i.e. simple interface for simple communications).
Of course, some of that required revenue growth may come through the acquisition of other companies, or the creation of completely new business interests, so it obviously doesn't all need to come from organic growth, and neither should it. But to increase its revenue by circa 10 times, they'd need to forcefully step on the toes of some seasoned opponents like Apple and Google, and those two aren't going to give up any revenue without one hell of a fight.
Designer & Developer at Freelance
4:28PM on 30th January 2012
All Facebook would need to do is enable e-commerce to occur direct from their site, apps, & phones (like iTunes) where all brands would be required to use their payment system and they would get a percentage of that transaction. It's an established model for Amazon, iTunes, PayPal and even credit cards. Seems like a no-brainer. It's started on a small scale already... and will grow. Which will mean they won't need to trash what's good about Facebook by filling it up with garbage or selling so much personal info that people leave them.
Log in to post a comment