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
    +1

    Comment number 177.

    The only reason facebook is values so highly is because the amount of profit the sale will create for backroom functions

    all of WallStreets lawyers,accountants,traders,Rating Agencies, Traders will have 100s of hours of work to do on this deal an will make a tidy profit...whether the investment fails or suceed, wall street and banks win

    Facebook cookies stalk u even after u leave the site

  • rate this
    -1

    Comment number 176.

    Facebook IPO: $100 billion value with 1/4 to 1/2 half going to one young, very young, man. This could become -- and probably is -- the final straw before humankind decides such instant super wealth is obscene and disgusting.
    Millions are okay, as are tens of millions, perhaps even a billion or two in total, but not this much. Again.
    Totally Obscene. Totally.

  • rate this
    -2

    Comment number 175.

    "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?????"
    --------------------------
    the difference being, knowing someones favourite type of music is not going to put people's lives at risk.

  • rate this
    -1

    Comment number 174.

    I detect a lot of dislike towards facebook here and yet nearly half the population of the uk is supposed to be on it.

  • rate this
    -2

    Comment number 173.

    Scratch your head time. 400 million daily users doing what, exactly on Facebook?
    A social phenomenon without logical explanation, unless we were all bored zombies before it came along. Will it survive transition from being a platform for rebel student activists to a commercial advertising platform to exploit everyone and anyone.
    At least Beckham is a pretty boy who was a half decent footballer.

  • rate this
    -1

    Comment number 172.

    165. G4RRY "to keep in touch with Friends and distant family, share photos etc."

    I do not get Facebook. I am not criticising his choice to use Facebook for the reasons he gives. I just do not understand why he uses Facebook at all. Why not write direct to his family and friends?

  • rate this
    0

    Comment number 171.

    At home framed I have my Lastminute.com share certificate to remind me never to be so greedy in future!

  • rate this
    -3

    Comment number 170.

    I've never once looked at Facebook. My daughters both used to use it but have since moved on. They reckon Facebook is for old people!
    I don't understand how the company can be worth billions of dollars, I thought it was free to use. I can honestly say that I have NEVER taken any notice of an internet advert. How Google, Youtube etc sell advertising space is quite beyond me.

  • Comment number 169.

    All this user's posts have been removed.Why?

  • rate this
    +2

    Comment number 168.

    As a result of the float Mark Zuckerberg can definately hit the "like" button as he is set to become very rich indeed.

    I bet the (former Sir) Fred Goodwin will be relieved as we have someone new to hate.

  • rate this
    +4

    Comment number 167.

    @159. Queen_Becci_B

    I'm sorry, but you were not a game developer, if you were you would understand that Facebook isn't 'filling peoples computers with nasty viruses'. Users who are ignorant of the internet take actions that are unwise and end up gaining viruses, just like on Google or on MySpace or on *any* website. Without exception.

  • rate this
    -1

    Comment number 166.

    All it takes is one major security breach for shareholders to lose vast amounts of value. Also, Zuckerberg remains in control until his death, at which point it gets handed over primogeniture-like to an appointed successor?

    You can't run a publicly listed company like that, even Steve Jobs was forced out once! Too many unanswered questions to be a suitable long term investment I reckon.

  • rate this
    +2

    Comment number 165.

    I have been using Facebook 3-4 times a week for years, mostly to keep in touch with Friends and distant family, share photos etc.

    I can honestly say I have never looked at an advert and certainly never clicked on one. Am I alone here or are the advertisers being sucked in big time and being sold a pup?

  • rate this
    +1

    Comment number 164.

    I realise I'm one of the few people who thinks it's rubbish. It has no point. 99% of people use it a)for mundane updates. Who cares what you're having for lunch?? b)to slag people off c)to get sympathy. You wouldn't have a public row in the pub with your partner, so why's it acceptable to air one's dirty laundry on Facebook. It's SAD!!

  • rate this
    +1

    Comment number 163.

    I'm glad, as a non user, I won't have to see banners saying "Fred's banal life story is sponsored by Sleepezee sleeping pills" or would Russell Brand prefer the london Rubber Company?

  • rate this
    0

    Comment number 162.

    First off, congratz to Zukerberg, he has successfully steered his way around many obstacles and vested interests to keep control of FB and become one of the richest+youngest people ever.

    I believe FBs price has been overpriced through hype, and just because $5bn is being offered, doesn't mean it will be snapped up.

  • rate this
    +2

    Comment number 161.

    Is FB worth $100 bn? NO. FB is a fad. Fleeting. Soon to be forgotten as people get bored and move on to other things. Having read the S1 document, I find it curious that FB which has $1bn of cash on it balance sheet has no immediate use for the proceeds of the floatation. They list a number of "ifs" and "mays". Looks to me like some people are cashing in and baling out before the party ends.

  • rate this
    0

    Comment number 160.

    @Andytom 142

    I have real problems with selective commentability and early closing-commentwise-on some articles.I find it weird stunted and odd,and agree that all articles should be commentable on.
    As for FB,strange that behind all the available privacy measures,FB limitlessly harvests and commercialises every aspect of personal info.V.weird/schizo.Sale will ensure more aggression+obviousness= :(

  • rate this
    +1

    Comment number 159.

    FB is a very bad investment, it doesn't work properly most of the time, fills your computer with nasty virus' & cookies & doesn't give a jot about your security. It isn't just through advertising that they get revenue, every time a user pays for points to play their games fb takes 30% from the app devs (I know I WAS one) having forced all game apps to use their fb credits.

  • rate this
    0

    Comment number 158.

    From a startup business to $100Bn business in 8 years... Mark should be an inspiration to young people throughout the world. He demonstrates that anyone can take a great idea and through hard work, commitment and perseverence make some serious money.

 

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