Facebook will file for a $5 billion IPO on Wednesday morning, according to a breaking news report from CNBC. It appears that last Friday’s reports of an expected Facebook IPO this week were indeed correct, though previous reports had expected Facebook to file an IPO for $10 billion. Also as mentioned from last Friday’s reports, investment firm Morgan Stanley will lead the IPO effort for Facebook, with assistance from Goldman Sachs, Barclays Capital, and other investment banks.
Facebook is expected to still be valued by investors at between $75 to $100 billion, despite filing for “only” $5 billion, half of the previously oft-mentioned $10 billion amount. Nevertheless, if carried through to market listing, Facebook’s $5 billion IPO will be one of the largest offerings in history. To put this amount into perspective, Google filed for a $2 billion IPO in 2004 with an initial share price of $85. Rumor has it that Facebook will set the initial share price at around $100, but details about the actual amount are still scarce.
The planned Facebook IPO will be the apex among a slate of Web 2.0 companies that have gone public over the last year, including well-known companies like Pandora, LinkedIn, and Groupon. Share prices for those companies have been quite volatile in their first year of trading, and their finances are still very tenuous (especially for Groupon, which reported losing $146.5 million in the first three months of 2011, on top of total 2010 losses of $456.3 million). However, unlike these smaller companies, Facebook is said to be currently earning profits around $1 billion for last year, which if true would mean the company is on much firmer financial ground.
For Facebook’s early employees, a successful IPO would make them instant paper-millionaires, much like many of Google’s early employees (including, reportedly, their chef) following their own IPO. It will be interesting to see how well Facebook continues to grow and find creative ways to generate revenue. Growing their user base (now at 800 million) can only continue for so long, so it will be crucial for Facebook to also keep growing their per-user value. Some analysts believe this very issue is the reason for the sudden shift to release Timeline for all Facebook users, which though already live for a few months, had been flying under the radar as an opt-in system.
No matter if Facebook is a strong investment option for the long-term, there are certain people who will be definitely cashing out in the immediate future following the official public launch. Among these group of lucky investors is Russian venture capitalist Yuri Milner, who has invested a total of $325 million into Facebook as of May 2011, the first round of funding coming way back in May 2009. Milner’s eccentric personality and investment successes were recently profiled in the November 2011 edition of Wired magazine.
What are your thoughts about a Facebook IPO? Do you feel that Facebook would be a good long-term investment, or is it better suited for a quick “get in and get out” approach? Or is Facebook a complete “stay away” for you. Let us know in the comments!
Many people are somehow still looking at Facebook as a social toy rather than the serious business tool that it is. Many people are ignoring not only Facebook’s potential in social, but also other fields like search and commerce that they may very well expand into in short order. I think that Facebook is rapidly justifying their $100 billion dollar rumored valuation when you consider how so many big brands had Super Bowl ads that featured Facebook URLs at the end of them, when you consider the sheer number of companies listed at http://www.facebookfansreviews.com that do nothing other than promote business pages, and when you consider that Facebook is nearing a billion active users despite the frequent criticism they receive as the 800 pound gorilla of the online world. Generally Facebook has done a great job building features that people and businesses alike value and I think its going to be a big part of the popular culture for some time to come. I think Mark Zuckerberg generally has the business acumen and judgement to avoid making bad decisions that will harm his company and he’s going to do well for a long time to come. A lot of Facebook’s employees are going to get extremely wealthy over this, even the Facebook designer who painted their office’s walls is going to end up with $200 million plus. That’s nuts.