Investors can barely contain their excitement about the latest rumors that Facebook, Inc. might be filing its initial public offering (IPO) as early as this week. Tech IPOs happen almost every day, so why all the excitement about this one? Facebook’s IPO will be one of the largest in history. It will generate thousands of millionaires from those lucky enough to purchase the stock.
Facebook’s Going Public
Facebook and potential investors are not commenting about the impending Facebook IPO, but everyone else is. Facebook, created in 2004, has grown to become one of the biggest social networking companies in existence with over 800 million users. The IPO is valued between US$ 75 and US$ 100 billion. It is expected to raise US$ 10 billion, which has caused significant competition among investors such as Morgan Stanley and Goldman Sachs that hope to get their piece of the deal. An unnamed source has indicated that both firms may be involved, but Morgan Stanley, which has also led the LinkedIn, Groupon and Zynga IPOs, may take the lead role.
When the IPO happens, it will be the fourth largest ever in the U.S. -- even larger than Google’s IPO in 2004 valued at US$ 23 billion, which raised US$ 1.9 billion. Only Visa, General Motors and AT&T Wireless had bigger IPOs, which is pretty amazing for a service that’s free to use and hasn’t clearly indicated if it's profitable.
Facebook’s primary revenue source is advertising, which experts estimate to be around US$ 4 billion or 1% of the global advertising budget. Facebook’s official valuation will depend on a variety of factors in addition to revenue, such as social media demand, state of the IPO market and the economy in general.
Facebook found Mark Zuckerberg has been reluctant to take the company public. Zuckerberg feared that the public scrutiny would be detrimental to the company’s culture. However, since Facebook was nearing 500 shareholders at the end of 2011, regulatory requirements would have forced the company to begin publicly reporting financial information even without an IPO and an opportunity to generate capital.
What This Means
Although the market is excited about the Facebook IPO, going public is unlikely to change much except the bank balances of stockholders and financial reporting requirements, because Facebook has been privately traded in secondary markets for some time. Further, even if Facebook is wildly successful, investors are unlikely to consider it a sign that they should rush to invest in other Internet companies.
The whispers about Facebook’s IPO are continuing to grow louder, but nobody outside of Zuck’s secret circle really knows when Facebook will go public. Will you be rushing to purchase Facebook stock? Let us know your thoughts.