Facebook unveils $5bn stock market flotation plans

 
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The world's largest social networking site, Facebook, has announced plans for a stock market flotation.

Facebook said it would seek to raise $5bn (£3.16bn, 3.8bn euros), about half the amount many analysts expected.

But the initial public offering (IPO) is still expected to be the biggest sale of shares by an internet company.

Facebook, just eight years old and started by Harvard University students, now has 845 million users and made a profit of $1bn last year.

Facebook filed its intention to float with the Securities and Exchange Commission after the US stock markets closed.

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For Facebook the issue is whether its turnover will continue to rise at an exponentially fast rate - basically whether it can generate ever growing revenues from its 845m monthly active users.”

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The documents revealed for the first time information about the company that had previously been the subject of speculation.

This included news that Facebook's net income in 2011 rose 65% to $1bn, off revenues of $3.71bn.

It was disclosed that founder Mark Zuckerberg owns 28.4% of Facebook and has more than 50% of voting rights. It also revealed that the network now has 845 million monthly users of which 443 million are daily users.

A letter from Mr Zuckerberg said: "Facebook was not originally created to be a company. It was built to accomplish a social mission - to make the world more open and connected.

"We think it's important that everyone who invests in Facebook understands what this mission means to us, how we make decisions and why we do the things we do."

Mega flotations

  • Google: raises $1.67bn for 7% of the company in 2004
  • Rosneft: raises $10.4bn for 15% of the company in 2006
  • Visa: raises $19.1bn for 50% of the company in 2008
  • Agricultural Bank of China: raises $22.1bn in 2010 making it the world's largest IPO to date

The $5bn being raised would be the most for an internet initial public offering since Google and its early backers raised $1.67bn in 2004.

"The company is a lot more profitable than we thought," said Kathleen Smith, principal of IPO investment advisory firm Renaissance Capital.

She said Facebook's numbers were "very impressive," but she added that Facebook needed to talk more about where it saw its growth coming from.

"What new areas of business is it expecting to pursue beyond display ads?" she said.

The final amount Facebook will raise is likely to change as Facebook's bankers gauge the investor demand for the shares over the coming months.

The story of the company was made the subject of a 2010 Hollywood film, The Social Network, and the firm has made the verb "to friend" a part of everyday language.

Valuation justified

Reports have suggested the company could be worth $100bn, roughly the same as US giants Amazon and McDonald's.

profits and values compared

Facebook currently makes most of its money from online advertising.

"As it is not a paying service, you are not the customer, you are the product," explains the BBC's technology correspondent Rory Cellan-Jones.

"What Facebook is selling to the world is users' time and their attention, their likes and dislikes, all that time and data they pour into the site, so that they can be very precisely targeted with adverts matching our interests," our correspondent says.

Analysis

For the first time, we have some detailed insight into the finances this extraordinary company.

What the documents show is that Facebook has been growing very rapidly and very profitably. In two years, revenues - almost entirely from advertising - have increased fivefold, with profits quadrupling to exactly $1bn in 2011.

But alongside the mass of numbers, we also get a letter from Mark Zuckerberg rather different from the conventional CEO boilerplate.

Facebook, he affirms, exists to make the world more open and connected, and not just to build a company.

Whether investors will be happy with that mission statement remains to be seen - although the document makes clear that Mr Zuckerberg will retain majority control of the business after the flotation.

So, anyone buying into Facebook is buying into its young founder's vision of the future.

As a private company, Facebook has not had to publish detailed accounts so it has not had to make public whether, or how much, profit it makes. This has been the subject of much speculation, however.

Releasing much more detailed information on its finances will become part of the Facebook's duties as a publicly listed firm.

"The company does change when you go public," co-founder of online travel site Lastminute.com Martha Lane Fox told the BBC.

"Whatever Mark Zuckerberg says about continuing to run the company for users, for employees, not for shareholders... it does mean there is a level of scrutiny and accountability not known in a private company."

Planning the IPO

"The IPO of Facebook is the one that investors have all been waiting for, given that it is now an iconic global brand with huge scope to expand even further," said Phil Wong, stockbroker at Redmayne Bentley.

"The major investment banks have competed to be selected as lead advisors given the status of the firm, and investors are sure to be equally eager to acquire a holding in the business."

Facebook is the latest in a series of online firms to sell shares to the public in recent months.

Online voucher firm Groupon went public in November 2011 and online games maker Zynga in December 2011.

Zynga's stock market value immediately fell below its asking price on the first day of trading, whilst Groupon climbed initially before dropping to about half of its offer price.

Shares in the social networking site Linkedin fell below their May 2011 offer price after its shares became freely tradeable.

However stock market traders remain positive about Facebook's flotation.

"Facebook is worth the expected $80-$100bn valuation because we believe it is and will be the dominant social media platform globally," said Richard Nunn at Charles Stanley Securities.

"It has more than 100m more US users than Google did when it IPO'd, and Google is valued at $180bn, and most importantly for advertisers, the average dwell time of 6hrs 51m per month spent on Facebook trounces the competition by some way.'

 

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  • rate this
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    Comment number 197.

    I might be a wise investment - if FaceBook hadn't recently decided to start being a corporate political meddler trying to influence government, been hacked several times, angered users with dangerous privacy exploitation, come under fire for being "just another evil corp"... Just as Google and Twitter are losing their ethical reputations, FB will end through public disgust. I wouldn't be investing

  • rate this
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    Comment number 196.

    Remember, if you pay your the "customer" if you don't you are the "product"? Businesses etc. etc. etc. are not being sold a pup as they are the paying customers and the non paying users of Facebook are the product that is being used knowingly or unknowingly!

  • rate this
    +1

    Comment number 195.

    BBC Question Time is televised. What a pity that Any Answers is not televised too.

    The question begs the lie that the Question Time panel is not representative, but only focused on news driven media that some find uncomfortable - including senior politicians we never see on Question Time anymore - but those only paying lip-service to agendas
    with something to support rather than an election spin

  • rate this
    +1

    Comment number 194.

    Can't believe I've got to get up at 11.00am tomorrow to 'sign on' at the dole. .

    Bloody freezing.

    Still . . another couple of days of this weather and I get my 'cold weather payment.'

    Grand.

  • rate this
    +2

    Comment number 193.

    Watching BBC Question Time. All the usual sanctimonious comments by those least affected - the Tax-Payer Alliance who are linked to the so-called Health Alliance who represent private healthcare vultures who take twice - once from the NHS and again from the tax-payer.

  • rate this
    +1

    Comment number 192.

    Here I go again. Banging on about MP and MEP expenses. The same people we elected to represent us - yet once elected - they claim for every bill we all have to meet:

    Council tax, rent/mortgage, heat/light/'phone, TV license, furniture, ALL car costs, home building/content ins/maintenance, medical care, food bills, travel to/from work/plus subsidised bars/ restaurants in HoC on top of £68K.

  • rate this
    +1

    Comment number 191.

    People seem to be plugged into something. Not me, I'm turned on all the time and have dropped out of this consuming lifestyle driven by technology.

  • rate this
    0

    Comment number 190.

    Some of these comments are naive at best.
    Facebook is "filling computers with nasty viruses"!
    You think a company doing that is valued at $100billion? Really?

    "never looked at an advert or clicked one"!
    You don't need to look at an advert or click one to be marketed to on facebook. Either way there is perceived value to your "impression" and advertisers are willing to pay for it = $100billion

  • rate this
    0

    Comment number 189.

    I was in a shop the other week, when the assistand asked me to wait whilst she finished doing something on her computer. After a few minutes, I noticed her screen reflected in a display case, it was Facebook.
    I walked out in disgust, so Facebook cost them a sale. I wished I knew her Facebook identity so I could have told her where I went, as I`m sure she didnt even see me leave.

  • rate this
    +2

    Comment number 188.

    Twitter will shortly be launched on the stock market?

    Isn't life too short to Twitter when celebs use it to promote themselves, and now, even MPs are twittering while sitting in The House of Commons at the tax-payer's expense?

    Our MEPs? Their expenses are very hard to find - aaargh!

  • rate this
    +3

    Comment number 187.

    Best advice:

    Never bank online - or pay your bills online - ever
    Never trust any company/social networks with your information
    Never trust any government with your personal data.
    -------
    Bank in the real world or 'phone banking
    Live your life in the real world
    Focus on your friends and family
    Remember that if your server goes down - how will you cope?
    Don't be so dependent on the internet

  • rate this
    0

    Comment number 186.

    Judging by a lot of comments here, you don't use it, don't like it and think people who do use it are fools. I use it to keep in touch with people I have met around the world, and meet new people who I can visit next time I'm in their country. (Canada next!)
    You're about as qualified in your comments as me saying "I hate football, and (insert your team here) are naff".

  • rate this
    +1

    Comment number 185.

    I use facebook a lot since I am a college student. However as someone who uses it a lot and is a business major I cannot see any future for facebook. What i mean by that is yes im sure facebook is here to stay but as far as break through advancements in the social media world they have nowhere to go so the stock value would never grow. Not sure why anybody would want to own facebook stock.

  • rate this
    0

    Comment number 184.

    If I owned Facebook I would sell it as soon as possible. I have used it for years but more out of habit recently.

    It is becoming increasingly annoying with every new "feature" and it appears that fewer people on my friends list are using it regularly. Facebook is now a bloated and constantly changing (for the worse) mess. I think users will drop soon as people migrate to the simpler Twitter.

  • rate this
    0

    Comment number 183.

    I really don't understand how a "business" such as Facebook could possible be worth $100 billion. They don't make anything, so the tide could turn anytime and the "fad" for this type of media could evaporate in months.

    I sense a bubble bursting soon.

  • rate this
    +4

    Comment number 182.

    I think a lot of people need to get a life.

  • rate this
    +2

    Comment number 181.

    Your Information is safe in our hands.

  • rate this
    +3

    Comment number 180.

    175.
    shades109
    1 Hour ago
    "the difference being, knowing someones favourite type of music is not going to put people's lives at risk."

    your probably the calibre of person that complains about government invasion of privacy only to let the world know you have piles on facebook. well done, what a world you live in

  • rate this
    0

    Comment number 179.

    Thank god the BBC have chosen to allow the public to comment on this entirely uncontroversial news article. People are barely bothering to comment beyond adding that they either like or don’t like fb - good job. I can’t imagine the kind of chaos and disagreement would have ensued if the BBC had chosen one of the news items that evoke strong opinions.

  • rate this
    0

    Comment number 178.

    Facebooks click through rate of 0.014% or 1 click per 7303 page views would suggest that FB ad's are not the cash cow companies paying for the ad's think it is. Like groupon I believe once companies realise the loss involved in a FB ad campaign it will be once burned never again.

    http://www.zerohedge.com/news/0014-ad-ctr-facebooks-weakest-link

 

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