Facebook IPO: How big will it be and what’s the significance?

February 1, 2012

The social-networking Web site is reportedly planning to file paperwork for an initial public offering with the Securities and Exchange Commission on Wednesday. Just how big would the IPO be? Hayley Tsukayama reports:

Facebook’s rumored to be filing its paperwork for its initial public offering Wednesday and is reportedly trying to raise $10 billion, which would give it a valuation of $100 billion. How do these numbers match up?

Historically speaking, if Facebook has raised that much for its initial public offering, it would:

• be the sixth-largest U.S. IPO ever, sliding between AT&T Wireless and Kraft Foods.

• be the 15th-largest IPO in global history, behind Glencore International and ahead of Japan Tobacco.

• have an initial public offering more than six times that of Google. Google currently holds the record for the largest technology IPO, according to Renaissance Capital, of $1.66 billion.

• come in with more hype than other technology companies, thanks to a per-share valuation that at least one investment firm predicts will open “north of $100,”Forbes reports. For example, when Apple went public Dec. 12, 1980, it was priced at $22 per share, climbing to $29 by the end of the trading day, according to Walter Isaacson’s biography of Steve Jobs. The Wall Street Journal reported that Apple made less than $100 million by selling stock to the public. Google, according to archives from The Washington Post, was valued at $85 per share, surging to over $100 a share by the end of the day for a market capitalization of $27.2 billion.

• have a market capitalization larger than Disney ($70 billion) or General Motors ($38 billion), if reports that its market cap is expected to be between $75 billion and $100 billion ring true. Compared with its technology peers, however, its market cap would be on the low end of the list, as compared with Google ($187 billion), Microsoft ($248 billion) or, of course, Apple ($422.47 billion). It would, however, outstrip Amazon, which has a current market capitalization of about $87 billion.

Dominic Basulto explains why the company’s valuation is estimated at $100 billion:

One way to value Facebook is to take a “comp” — comparable company — and use that company as a proxy. For now, Facebook appears to make the lion’s share of its revenue via advertising, so a comparable company might be a media company. The argument that Facebook plans to make its money by advertising is obviously not what Wall Street really wants to hear. Advertising and page views have a way of drying up over time, just ask any media mogul.

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What Wall Street wants to hear is that you have a model for “monetizing” each and every one of those 800 million users. Consider that the average person spends an average of between 7 and 8 hours on Facebook per month. The site, in Web parlance, is “sticky.” With its new Timeline Apps, Facebook has made the site even “sticker.” For bankers, the real future of Facebook is not advertising but the ability to leverage apps and gaming platforms for revenue. Just as cable companies are valued at a dollar value per subscriber, Facebook needs to convince Wall Street that it can monetize its user base through games like Farmville on a consistent basis.

If Facebook can convince Wall Street of this, it may be worth well more than $100 billion — just as Google wound up being worth well more than its initial $23 billion investment. Whatever the final Facebook IPO valuation, there will definitely be consequences for other companies, such as Twitter, looking to go public soon. The Facebook IPO will become the new standard for other Internet players trying to go public before the IPO window slams shut. If you’re a young Internet CEO — even if you’re directly competing with Zuckerberg — it might be worth it to wish for a big Facebook IPO this spring.

The company’s chief executive Mark Zuckerberg isn’t the only company leader who would be thrust into the spotlight as a result of the IPO. Bloomberg News reports:

Facebook Inc.’s Sheryl Sandberg recently threw a fundraiser for President Obama, dining with Lady Gaga and the president himself. Last week, she was a highly visible co-chair of the World Economic Forum in Davos, Switzerland.

As Facebook prepares to raise $10 billion in the largest- ever technology initial public offering, Sandberg, the company’s chief operating officer, is about to be thrust even further into the limelight.

Since joining the company in 2008, she’s become the public face of the Menlo Park, California-based social media giant, forging ties with advertisers, policymakers and partners. With the IPO, likely to be heralded by a regulatory filing this week, Sandberg will be taking on a larger function helping senior management represent the company to a broadening investor base and to Wall Street analysts.

“She’s going to play a crucial role in everything that happens over the next few months,” said Matt Cohler, a special adviser to Facebook and general partner at Benchmark Capital in Menlo Park. “She is very deeply connected” in political and business circles, said Cohler, who served as a Facebook vice president from 2005 to 2008.

At 42, Sandberg serves as the outgoing and more seasoned foil to Chief Executive Officer Mark Zuckerberg, a 27-year-old coder who sets the company’s strategy even as he shuns publicity. During a career that has spanned Google Inc., McKinsey & Co. and the U.S. Treasury Department, Sandberg has honed what friends, colleagues and former employees say is a penchant for brokering alliances, fostering loyalty and setting priorities.

More from The Washington Post:

The challenge of a Facebook IPO

FTC settlement gives Facebook leverage

Social media’s rise to power

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