Last November, the Wall Street Journal quoted sources who said Facebook was preparing a initial public offering (IPO) for the second quarter of 2012. Now however, the newspaper is quoting further sources saying this could happen as soon as this week.
We have been hearing reports about a Facebook IPO for some time now and there is little doubt that this will eventually happen. However, when it happens is another matter.
The Internet giant is close to picking Morgan Stanley to lead the deal and last week Facebook’s law firm, Fenwick & West temporarily halted trading in Facebook’s privately held shares on the secondary market, sparking even more excitement that the IPO is imminent.
An IPO of $10bn will be the biggest of any technology company in history and will be around six times that of Google. Companies usually go public when they break the $100 million revenue barrier – Facebook is set to debut with more than $4bn of revenue.
The only other companies with a $10bn plus IPO were AT&T, General Motors and Visa. If Facebook does float at $10bn, it will value the eight-year-old company at between $75-$100bn.
The question of why Facebook needs this money has been raised, especially since the company doesn’t need it to build more factories or build more products. What would Facebook do with $100bn?
The answer seems to be, to pay off investors. As the largest single shareholder, Mark Zuckerberg with 24 per cent is set to nab a cool $24bn with other co-founders Dustin Moskovitz and Eduardo Saverin picking up $6bn and $5bn respectively.
The stock pile of money will also allow Facebook to buy other firms and compete with the likes of Google, as Zuckerberg continues his plan to make Facebook a company to rival the likes of Microsoft, Apple and Google itself.
Facebook currently has 800 million users and a valuation of $100bn would value each customer at $125, which is around 15 times less than what Google’s customers are worth according to Alan Patrick, co-founder of technology consultancy Broadsight.
Whether or not the IPO takes place this week is open for debate but when it does finally happen, the company will face increased scrutiny on its ability to rapidly grow revenue and convert its huge user base into huge profits.
Is Facebook worth $100bn? Let us know what you think in the comments below.
Source: Wall Street Journal