Facebook Files $5 Billion IPO

The speculation is over. Facebook Wednesday filed for an initial public offering to raise up to $5 billion in a deal that could ultimately value the social network at an estimated $75 billion to $100 billion. Though less than the $10 billion rumored, the transaction would be the largest IPO ever by an Internet company, easily eclipsing the $1.9 billion raised by Google in 2004.

The $5 billion is seen as just a preliminary fund-raising target that Facebook could expand to the expected $10 billion to meet investor demand. The company’s actual market debut isn’t expected until this spring, when it will set pricing for its shares. 

In a letter to potential shareholders, Facebook CEO Mark Zuckerberg reaffirmed the compay’s often-stated goal of making the world more open and connected. “We think a more open and connected world will help create a stronger economy with more authentic businesses that build better products and services,” he wrote. If nothing else, the IPO will certainly provide more money for Facebook to create better services. 

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Below are some of the highlights of the Facebook filing. 

User base: Facebook has 845 million monthly active users worldwide.

Financials: Facebook had revenue of $3.7 billion in 2011, up from nearly $2 billion in 2010 and $777 million in 2009. Net income last year was $1 billion, up from $606 million last year and $229 million in 2009. 

The revenue total is somewhat below the widely circulated estimate of $4.3 billion by eMarketer.

Revenue split: The vast majority of Facebook’s revenue -- $3.1 billion -- came from display advertising on its site. Another $557 million came from payments and other fees derived mainly through the share of revenue the company earns from Zynga games played on Facebook, such as "FarmVille" and "CityVille." A full 12% of the social network’s 2011 revenue came from Zynga alone.

Facebook said ad revenue grew 69% in 2011, due mainly to a 42% increase in the number of ads delivered and an 18% increase in the average price per ad delivered. 

Marketing and sales: Expenses increased 132% in 2011 to $427 million, mainly as a result of a 46% increase in employee headcount to support global sales, business development and customer service.

Risk Factors: Among the risk factors listed, Facebook acknowledged that its lack of display advertising across its mobile properties, which draws 425 million monthly active users, could negatively affect its revenue and financial results. If it can’t effectively monetize its rapidly growing mobile audience, it could have a problem. 

The company notes that its mobile growth depends on an array of mobile operating systems, networks and standards that it doesn’t control.

The filing also points out that Facebook is subject to government restrictions internationally that could impact its business. “For example, access to Facebook has been or is currently restricted in whole or in part in China, Iran, North Korea and Syria. In addition, governments in other countries may seek to restrict access to Facebook if they consider us to be in violation of their laws,” it states.

Competitors: Google, Microsoft, Twitter. Others abroad include Cyworld in Korea, Mixi in Japan, Orkut (owned by Google) in Brazil and India, and vKontakte in Russia.

Use of Proceeds: To be used for working capital, general corporate purposes and potentially for acquisitions of complementary businesses. 

Compensation: Facebook founder and CEO Zuckerberg had a base salary of $500,000 in 2011 and total compensation of almost $1.5 million, including personal use of a chartered aircraft. Overall, he holds 533.8 million shares, equal to a 28.4% stake in Facebook. 

Underwriters: Morgan Stanley will lead the offering with help from JPMorgan Securities, Goldman Sachs, Merrill Lynch, Barclays Capital and Allen & Company.

1 comment about "Facebook Files $5 Billion IPO".
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  1. Mike Einstein from the Brothers Einstein, February 2, 2012 at 9:06 a.m.

    From the perspective of the advertising world, Facebook represents a very negative influence in that it is the world's biggest display advertising seller setting the lowest price.

    With virtually no content-development costs to speak of, Facebook can afford to price itself far enough below the likes of content providers like Yahoo, Aol, and MSN to ensure its fortune and dominance.

    A quick search reveals examples of ad campaigns on Facebook costing less than a dime per thousand impressions and a RPM pageviews of less than fifty cents (per Trefis). That's a cost per impression of only five hundredths of a cent! Normally I would claim unfair competition, but given Yahoo's RPM pageviews of only a buck-fifty (also per Trefis), and Aol's RPM pageviews of less than three bucks (less than three tenths of a cent each), it would seem Facebook, despite its size, is merely the shortest midget in a race to the bottom.

    Ask yourself what it says about a product when the seller is the first guy to proclaim its relative worthlessness (I forgot to mention the average CTR on Facebook of .06%)?

    Meanwhile the TV guys, at an extortionate $50 CPM-impressions in prime time, are laughing all the way to the bank.

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