Facebook IPO: Valuation, Stocks Performance

[Updated Feb 2012]
  • Facebook took its first step toward becoming a publicly traded company on Wednesday as it filed to sell shares on the stock market.
  • It plans to raise $5 billion from the initial public offer (IPO). 
  • The company recorded revenue of $3.7 billion last year, an 88 percent increase from the prior year. During that period, Facebook posted a profit of $1 billion.
Facebook IPO  Valuation Size Stock & Share performance
International Financing Review cites “sources close to the deal” for the following latest information on the Facebook IPO, Stocks Valuation:
  • Facebook will file a preliminary prospectus for its long-awaited IPO Wednesday morning
  • The company will raise less than expected — $5 billion. The company is planning to raise half of the previously reported $10 billion because it decided to “start with a conservative base before deciding whether to increase.”
  • The company will then offer shares to the public in May, pending a “smooth registration process with the SEC,”
  • Morgan Stanley will lead the effort, though Goldman Sachs, Bank of America Merrill Lynch, Barclays Capital and JP Morgan are also included on the list of intial bookrunners.
  • The timing of the IPO had been reported last Friday by The Wall Street Journal. 
  • Facebook also halted trading in secondary markets for three days last week, another signal that the move was coming.
  • An upcoming share offering would also explain Facebook’s product roll outs of late. Last week the company announced it would be rolling out its new profile template, Timeline, to all users, at a speed that left us scratching our heads. The week before it revealed 60 apps that are tightly integrated into Timeline, and announced a process for developers to create more Timeline apps.
  • If and when Facebook does file its S-1 paperwork, it will be forced to enter a “quiet period” — without product announcements, interviews or any other public statements.
When Facebook goes public it will raise $10 billion, bringing its valuation to $100 billion
  • Reasons for going Public: 
    • There are several reasons why a company typically goes public: 1) To raise capital; 2) to enrich the company’s founders and insiders Facebook’s situation is a bit different. 
    • One major reason that Facebook is going public now is that private trading in the company is pretty much maxed out. Under U.S. laws, once you get 500 or more private shareholders, you have to publish detailed data about your company’s financial performance. 
    • Private trading in Facebook as well as Zynga, Twitter and the pre-IPO LinkedIn also drew scrutiny from the SEC last December. 
  • Disadvantages of going public: 
    • Mostly the loss of privacy and scads of red tape. 
    • Facebook will now have to report quarterly and annual earnings as well as more juicy information, like the amount of shares that executives in the company hold.
    • Another issue is Sarbanes-Oxley, the post-Enron reform Act that President George W. Bush signed into law in 2002. SOX, as it’s known, provides a new level of lawyer- and accountant-approved documentation for public firms and is to blame for the decline in U.S. IPOs over the last decade. However, proponents say SOX makes U.S. businesses more competitive because it forced American companies to clean up their books.
  • Exact value of Facebook’s shares:
    • This would not be known until the night before Facebook goes public. 
    • Until then, Facebook will have to file an S-1 form with the SEC and then can file various amended versions (S-1/As), none of which will have much in the way of compelling information. 
    • Pricing information will be included in the final S-1/A, which will be made public just before Facebook shares are available.
    • Pricing will also depend on how Facebook brings its shares to the market. The typical course is to go with a firm commitment offering, which would offer shares at a set price to the underwriter. This can be a sweet deal for the underwriter if the shares are underpriced and is considered to be leaving money on the table for the about-to-go-public firm. Another option, made popular by Google’s 2004 IPO, is to offer shares via an auction. It’s not clear which route Facebook will take.
  • Biggest tech IPO ever
    • The next-largest tech IPO ever is one for Infineon, a German company that raised $5.9 billion in 2000. 
    • Google’s IPO, which raised $1.9 billion, is number six on the list.
    • Facebook’s will hardly be the biggest IPO ever, though. That honor belongs to either General Motors, which raised $23.1 billion in 2010 or Nippon Telegraph, which raised $29.8 billion in 1987, in inflation-adjusted dollars.
Facebook is likely to go public in first quarter of 2012
  • According to a recent report, Facebook is preparing for an IPO which could be around $100 billion in valuation
  • Facebook’s $100 billion IPO would be one of the largest in history, more than 4 times that of Google’s $23 billion IPO in 2004.
  • Facebook has a May 2012 deadline to publicly report its financial information, regardless of whether it’s a private or public company.
  • Facebook has a huge consumer and investor appeal which makes the $100 Billion IPO expectation quite real.
  • Goldman Sachs is in the driver’s seat to underwrite the IPO after its $450 million investment in Facebook earlier this year.