What Is Facebook IPO?
The purpose of an IPO, or Initial Public Offering, is to raise finance for companies through the public sale of shares. IPOs were a significant feature of the "dotcom boom" of the 1990s, but unfortunately became associated with the "bust" period that swiftly followed. Analysts anticipate that Facebook will make an IPO in 2012, although many questions surround the company's valuation and the reasons for it having an IPO at all.
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Valuation
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As of publication, the media speculates that Facebook will have a $100 billion valuation at its forthcoming IPO. In early 2011, Goldman Sachs investment bank and Digital Sky Technologies invested in Facebook based on a $50 billion valuation. Few companies have a $100 billion valuation and those that do, such as Exxon Mobil and General Electric, are blue chip firms that have stood the test of time. Wall Street Journal reporter, Shira Ovide, questions whether Facebook's expected earnings -- in excess of $2 billion by the end of 2011 -- justifies such a high valuation.
Reasons
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Facebook founder Mark Zuckerberg has been evasive about the company's commitment to an IPO. However, he may have no choice as Facebook is about to reach the maximum number of private investors a company can have without publishing its financial information. The Securities and Exchange Commission sets this at 500 investors. According to the Wall Street Journal, issuing an IPO at the same time as releasing financial information would benefit Facebook and its many staff who have acquired shares but are currently restricted from selling them.
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Innovation
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Social media commentator Adam Schreiber, writing for Social Media Today, suggests that Facebook needs to introduce some innovations to justify the $100 billion valuation to stock analysts. He remarks that while Facebook's revenues are healthy, increased competition from Twitter, a lack of repeat visits and what he calls "Facebook fatigue" may jeopardize Facebook's future growth in the social networking sector. He also says that while approximately 245 million Facebook fans access the site via mobile devices, Facebook has yet to capitalize on the growing tablet market, led by iPad, by launching a Facebook app for this format.
Interest
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Facebook has already been the subject of an Oscar-winning film. This is some indication of the interest surrounding the company. Media, technology and financial commentators all appear sure of the fact that the Facebook IPO will attract a significant amount of interest as investors rush to have a slice of what the Wall Street Journal calls "the Facebook IPO magic." Its IPO, if the anticipated valuation of $100 billion stands, will quadruple Google's IPO of $23 billion in 2004.
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References
- Huffington Post; Facebook's Value?; April Rudin; July 28, 2011
- SocialMedia Today; Reports Indicate Facebook IPO to be Delayed; Adam Schreiber; July 25, 2011
- Wall Street Journal; What we Know About the Facebook IPO; Shia Ovide; June 13, 2011
- Wall Street Journal;Hot Trade in Private Shares of Facebook; P-W. Tam and G.A. Fowler; Dec 28, 2010
- Mashable; Facebook Preparing for $100 Billion IPO in 2012; Ben Parr; June 13, 2011
- Photo Credit Thinkstock/Comstock/Getty Images
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Comments
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Facebook is at its peak and will obviously start to decline after it sells its stock to the public. People shouldve learned that lesson back in the DOT-COM boom and bust years ago. Look at Myspace.com, Yahoo geocities, ect. have all run out of gas because people get bored and like new things. Zuckerbergs facebook is a sneaky but brilliant effort to allow government authorities access to the personal lives of virtually everyone, everywhere. And rest assured, Zuckerberg very likely and almost certainly sold us out and allows the Feds access to whatever they wish. Definatly wouldn't risk investing in something that has the smell of a rat all over it.
