Facebook unveils $5bn stock market flotation plans

 
Hand on mouse

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
    +2

    Comment number 77.

    71. "And if the net suddenly disappeared tomorrow it would be worth less than nothing."

    can always sell the servers and switches to recycle the (precious) metals. ;-)

  • rate this
    +1

    Comment number 76.

    72.The_Squirrel FYI I did do that.Having followed all those procedures I still got an e-mail from FB some 6 wks after informing me that I could still re-activate the a/c.I didn't de-activate,I chose to delete using their system.

  • rate this
    -11

    Comment number 75.

    I, for one, believe that Facebook is here to stay. Most of its users understand that ads are a necessity if they want the website to remain free for them. And its longevity creates a real barrier to entry for the competition. Would most people cancel their accounts with all their existing connections and historical data to start from scratch somewhere else? I'm not so sure... Well done Zuckerberg!

  • rate this
    +4

    Comment number 74.

    If you have a Facebook friend who is suffering with the need to buy shares so that they can continue to let the World know what they had for lunch there is help at hand. Would you post this on your wall for one day and help them? Most people won‘t (probably because they have a life).

  • rate this
    +2

    Comment number 73.

    21.PH73
    1 Hour ago
    Fair play to the lad! Shows what can be done with some ingenuity, creativity and hard work.
    ==================
    No it shows "Lemming Mentality" of society today for instant gratification. The concept is not new, just rehash of 1970's BBS's
    wrapped up in "Eye Candy".. $100Bn get real, if was a new life saving
    technology yes... But a glorified "Oh look at me".

  • rate this
    +4

    Comment number 72.

    @70 - You've 'de-activated' your account. To delete your account, you have to go to the Help page, do a search on how to delete your account and fill in the appropriate info. You then have a two week period (in case you change your mind) before your account is deleted, permanently.

  • rate this
    +4

    Comment number 71.

    67.TV_As_Eyes

    Well this is just the kind of nonsense you get just before a company gets sold.

    9 billion users in over 350 countries with a net worth of 2 gazillion dollars.

    I don't even believe its worth $1bn in actual, tangible money.

    And if the net suddenly disappeared tomorrow it would be worth less than nothing.

  • rate this
    +7

    Comment number 70.

    I closed my FB a/c or I thought I had.I was informed by FB that although I had chosen to delete said a/c the details would remain and I could re-activate the a/c at any time.This tells me they haven't deleted details at all,just 'hidden' them.Its this cavalier attitude to privacy and security that will come back to haunt them.When I close an a/c I expect ALL personal data to be removed,not hidden.

  • rate this
    +9

    Comment number 69.

    An absurd valuation given the company makes money only from advertising.

    Clearly Facebook CEOs and the investing public/industry believe the dot.com bubble was something that happened in a different universe.

  • rate this
    +49

    Comment number 68.

    45. matt mackenzie
    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
    -----
    Bill Gates gives away billions - he's the devil incarnate.
    Steve Jobs kept all his billions - revered as a god.

    I can't work it out either.

  • rate this
    +4

    Comment number 67.

    "Facebook .. now has 845 million users.."

    accounts, not users. many companies and individuals have more than one 'page'.

    on topic: "Facebook said it would seek to raise $5bn.."

    "A fool and his money are soon parted" comes to mind.

  • rate this
    +2

    Comment number 66.

    65. Green Future

    Avoid......

    --

    Snog or marry?

  • rate this
    +1

    Comment number 65.

    Avoid......

  • rate this
    +2

    Comment number 64.

    This is the end for FB.Zucker was right on the money by not advertising on the site from the get go and even when he was forced to advertise to meet costs had apologies littered everywhere. However, now the endeavour has turned into a business with shareholders and all.Ppl will wise up to the fact that their personal data is not worthless and won't stand for a company profiteering from it.

  • rate this
    +8

    Comment number 63.

    @57 Big Phill

    Yes, but only if said carwashing business was based on a unique, patented process that if applied to a much larger business (which the original owner couldn't make due to lack of funds) would result in serious revenues in the future.

    Facebook's problem is that it's the opposite of the above. It's already collosal, it's not unique, and there's not a lot of room left to grow.

  • rate this
    +9

    Comment number 62.

    "Big Phill
    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?"

    Most might think a 27x multiple of PROFIT was excessive, never mind revenue.

  • rate this
    +2

    Comment number 61.

    And despite all the "improvements" FB have made to their security in recent years, the system is still inherantly unsecure.......because it involves human beings and an awful lot of them......

    Until folk stop "friending" people they don't know in the real world scamsters will still get in - and how much is the data worth if scammers can mine it for free using human stupidity?

  • rate this
    +5

    Comment number 60.

    'Facebook filed its intention to float' ... I know of something else that floats, disappeared when I pulled the flush chain though.

  • rate this
    +1

    Comment number 59.

    Excellent, we have an opportunity buy back a small share of the data that we've unsuspecting given away for free. Sounds like a bargain to me ;-)

  • rate this
    +8

    Comment number 58.

    56. BadlyPackedKebab indeed.

    And an approx 100 times evaluation based on current "profit"?

    Mmmm, they have a user base to advertise to and lots of servers to store the user bases egocentric rubbish.

    I don't see it worth more than 2-5 times the current so-called "profit" (which probably only exists on paper).

 

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