After years of meteoric growth, Facebook will be filing for its initial public offering today. The social network is expected to raise $5 billion, which would value the company at between $75 billion and $100 billion. It’s been one of the most widely anticipated IPOs since Google went public in 2004.
The offering is expected to be a bonanza for investors, though the Facebook itself does not need the IPO for access to capital. “They have absolutely no problems attracting financing when they need it,” said Yael Hochberg, an assistant professor of finance who studies venture capital. “Markets like SecondMarket provide liquidity for divesting of shares, and no company truly relishes the burden of public company reporting requirements and short term pressures from investors interested only in where the stock price went last quarter. For focus on long-term business, they are likely to have been better off remaining private.”
Facebook’s offering was likely prompted because it has more than 500 investors, a threshold which triggers an SEC requirement to disclose its financial statements. Disclosure without a public offering does not offer much benefit for a company, so many go public around that same time.
With the books finally open, we’ll have a better idea of exactly how much money Facebook makes. But by all estimates, the firm has nothing to worry about. Ad revenues for 2011 were estimated at $3.8 billion, Hochberg said, a more than five-fold increase over the previous two years. “Growth in Facebook users seems to be slowing, but growth in monetization of user activity appears to be increasing,” she added.
Perhaps the biggest question on people’s minds is Facebook’s eventual valuation. “Is it worth $100 billion?” Hochberg asked. “We’ll have to see the numbers in the filing to get a better idea.” But she is bullish on the Facebook’s outlook. “I think that looking forward, Facebook will continue to grow revenues through advertising—which seems to be very effective when embedded in a social network as Facebook has done—but also through many other channels,” she said. “To me, the key issue here is recognizing that for many people, especially younger users, Facebook is the Internet.”
Photo by Andrew Feinberg.