Facebook filed their S-1 document on Wednesday setting the ball rolling for an initial public offering (IPO), which will send shockwaves through the global markets. The IPO will raise between 5 and 10 billion USD and will start trading around Springtime.
Rumour mills valued the company at USD$100 billion, reflective of the 100 billion friend connections on the site as of the end of December 2011, but the value is considerably less after the tech market analysts got their hands on the financials. It is more likely to be in the region of USD$75 billion, which is still a staggering appraisal.
Specifically, Facebook is nearly a $4 billion company with nearly a 50 percent operating profit margin growing at better than 75 percent [sic] per year.
Facebook’s $1 billion of earnings in 2011 was up from $600 million the prior year, about 66 percent growth. [Source: Business Insider]
Only a few years ago, in 2007, the Microsoft acquisition of USD$15 billion of Facebook shares was sneered at by many in the industry. But with a mesmerising business model and a wealth of incredibly accurate metric data at their disposal, the value of Facebook stock became increasingly realistic. However, with an influx of new parties with a vested interest in profiteering, will this ocean of private information be vended for increased earnings?
Despite the fact that Zuckerberg will retain 57% of voting rights in the company, shareholders will most certainly be putting pressure on revenue uplift, and if it does not come from the selling of data, we might face more heavy set advertising placements. This might have ramifications on the user experience before long, where Facebook will pander to the profiteering nature of new investors.
So with our private information becoming more likely to be exposed and a possible overhaul in the network’s core experience for users, Facebook could become a victim of their own success. It is unlikely that the 845 million active monthly users will flock elsewhere, more likely is that this potential scenario will equalise itself before long: any new dividend-centric investors could become frustrated by Zuckerberg’s unwavering stance on company policy and operation and will sell and move on. Stock prices may drop for a short period while experience-centric investors jump on the bandwagon instead.
Recent Tech Trends
Below is a few charts of tech IPO’s, including more recent ones from Zynga, and LinkedIN. What’s interesting to note from the charts is that the movement between both Groupon and LinkedIN , although recorded over different timescales, is not dissimilar – an overhyped IPO followed by a dip. The exception of course is Zynga, which has been riding along the success of Facebook, proven by the huge hike in the past few days, following the SEC filing.
There is debate around whether Facebook’s IPO will be the catalyst for a mimic of the turn-of-the Millennium-type tech industry bubble. Some claim that there is absolutely nothing bubble-esque about Facebook and its decision to float, and that the Zynga, Groupon and Linkedin IPOs have received too much hype. The argument revolves around the idea that every man and his dog is pitching in on the debate, and very few of these people know the process of floating a company on the market at all. This leads to misinformation and a swarms of people following poorly informed opinions on the matter. The point being made is that we should not take one, two or even ten people’s advice on whether a bubble is forming, only time can tell us that – it is very uncertain.
On the flipside, it is worth noting that caution shouldn’t be taken with a pinch of salt. Since the SEC filing, stocks in web companies which have recently IPO’d have risen by up to 7%. Although this is not a sure sign of a bubble forming, there definitely seems to be a bullish attitude toward the web industry as a whole in light of Facebook’s IPO.
That said, wealthy investors are wary of buying up any remaining stock (after private offerings have been completed) as they remain vigilant of being the ‘last money in’ if a tech bubble is on the horizon. Simply, they are not willing to buy into the hype at this time, they want to see the dust settle before making any concrete decisions. Certain centure capital funds do not believe one can make a quick buck from Facebook at this time (see ‘Useful Link 4′ below).
Whether or not you are concerning yourself with the market ramifications of a Facebook floatation, the fact of the matter is that we are witnessing a historically sized tech IPO. Only eight years old, Facebook is already one of the largest companies and employers operating today and is on the verge of inducing a large new wave of million and billionaires. It is exciting to think what these new heavyweights will be able to achieve with their new-found wealth, especially in the field of philanthropy and new technologies…
(1) Facebook’s S-1 Document [via: sec.gov]
(2) Facebook IPO: Should You Invest? [via: WSJ]
(3) Why, As An Average Joe, You Will Not Earn From The Facebook IPO [via: moneyville.ca]
(4) Why Are Wealthy Investors Wary Of Buying Facebook Shares? [via: BusinessWeek]