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
    +15

    Comment number 57.

    So a revenue of $3.71 billion works out as a value of $100 billion? That works out as almost 27 times turnover. Anyone else think that's a bit excessive?

    If someone had a carwashing business and had a turnover of £100 a week, would you pay £140,000 to buy that business?

    Me neither

  • rate this
    +20

    Comment number 56.

    "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's worth it because they 'believe' it is, nothing based on facts then ? Would these be the same sort of financial 'maestros' who 'believed' that the property boom would never end ? One to avoid then !!

  • rate this
    +15

    Comment number 55.

    If the Government made it law that you must publish your likes, dislikes, what you had for breakfast, where you're going tonight etc online - there would be outrage.

    Yet people are willingly doing this now. Very strange.

    I do think that SOPA and ACTA are forcing Mark Z's hand though. Getting out while the going's good me thinks

  • rate this
    +15

    Comment number 54.

    I use Facebook, and this doesn't particularly bother me. I'm sure there will be attempts to mine more data from users accounts to sell on for profit, but I am aware that the internet is a public place. If you want something to be private, you don't put it on the internet!

  • rate this
    +4

    Comment number 53.

    Overvalued. When the bubble bursts I hope this one goes down big time. There are lots of small innovative companies out there with ideas that they didn't steal who deserve success.

  • rate this
    +5

    Comment number 52.

    Having been been working for ISP's and Mobile operators for some 20 years I have seen it all before.
    Remember Myspace? remember Alta Vista? Watch a film called STARTUP.COM to see what really happens.
    The problem for FB is that it's trying present itself as a new concept.The challenge FB ,Twitter etc is they rely on the complicity of information gathering turning into sales.I doubt that model works

  • rate this
    +19

    Comment number 51.

    Internet users have no loyalty.
    Once fb starts charging, or the adverts get intrusive, watch people leave for something else.
    See friends reunited or myspace for details.

  • rate this
    +13

    Comment number 50.

    facebook with financialy motivated share-holders, yay the end is nigh.
    finally i might get some friends back into the real world.

  • rate this
    +5

    Comment number 49.

    It appears that people haven't learnt much since the dot.com crash.

  • rate this
    +15

    Comment number 48.

    Here comes the next dotcom bust... No but this one is different... As different as AOL... Friends Reunited... MySpace...

  • rate this
    +4

    Comment number 47.

    Simplistic analysis of the value / profit compared to established businesses in the report puts the Facebook valuation at between 5 to 10 times overpriced in my opinion. Investors will be paying a hefty premium for unknown future potential. I suspect that to support the value, the company will have to become much more aggressive in making money from their users regardless of Mr Z's principles.

  • rate this
    +3

    Comment number 46.

    41.Muppet_Master

    Or ACTA which the US has already signed off on and the EU inc the UK are about to sign off on if the EU parliament approves it.Under this act it is illegal to sell tech that can copy or rip drm encoded media. ISP will be compelled to hand over your details or face massive financial penalties. So if you post this content on FB its just when not if then watch its shares drop.

  • rate this
    +27

    Comment number 45.

    hmmm julian assange gives away information on corporations and governments for free and is criminalised, mark zuckerbuerg sells peoples information for profit to god knows who and wins the praise of the world?????

  • rate this
    +4

    Comment number 44.

    When I first heard about this I immediately deleted my FB account, and as yet haven't missed it.
    I'm not comfortable with a company whoreing out my personal details for financial gain.

  • rate this
    +9

    Comment number 43.

    Lets hope it sinks not floats. The whole thing is a carbuncle and nothing more than a means of gathering data from unsupecting users.
    Get out and get a life with real "friends " before it;'s too late

  • rate this
    +5

    Comment number 42.

    I hate Facebook.

    I find it narcissistic - all very "Look at me".

    How it has become so popular and worth so much is beyond me - it's not even a particularly well designed web app.

    Having said that I don't understand how the "Charlie bit my finger" YouTube vid became so popular - I guess I'm just missing something - or maybe I'm not.

  • rate this
    +9

    Comment number 41.

    How long will Facebook last with the likes of SOPA and PIPA lurking in the shadows? If either (or both) are eventually passed freedom of speach will be limited, and FB held responsible for 800 million peoples views

    A lot of money will be riding on a LOT of risk here, me thinks

  • rate this
    +6

    Comment number 40.

    I really hope my pension fund does not put my money into this bubble.

    Unfortunately I'm never told if they intend to do such things and I'm not asked if I like it. It will be my money that is 'lost' but their money 'bonus' if it gains.

  • rate this
    +2

    Comment number 39.

    " DrTensor
    Very perspicacious.Thank you BBC (and Facebook) for casting this light onto the NHS."

    We pay for the NHS directly via our taxes. It is only free at the point of use and it is accountable to the taxpayers who are its users for its outcomes. FB is free to its users but not those who use it for advertising and promotion and there is no accountability between its users and its funders.

  • rate this
    +2

    Comment number 38.

    Here's hoping that facebook will finally have to behave & actually attempt to stop all the nasties that are on it's site. I'm not surprised they have made so much money out of users, they can't even make one of their biggest game providers (zynga) toe their line & have actually altered their own T&C's allow dodgy things from said company.

 

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