The tech and investment worlds are in a frenzy, now that the Wall Street Journal has reported Facebook may be inching ever closer to a $10 billion initial public offering (IPO), possibly as soon as Q2 2012. It could be the most valuable IPO ever by an Internet or tech company, dwarfing Google’s $1.7 billion IPO in 2004, previously the largest by a U.S. Internet company.
At that time, Google’s initial sale brought the company valuation to $23 billion (it’s now worth about $190.4 billion). Facebook, Google’s top online advertising competitor, was valued at approximately $50 billion in January, when Goldman Sachs Group Inc. and others invested $1.5 billion.
SharesPost, a company that offers valuations of private companies, estimates Facebook’s current value at $66.6 billion. The rumored IPO could result in a $100 billion valuation for the social network.
During the January round of funding, Facebook said in a press release that they “expected to pass 500 shareholders at some point in 2011, and therefore expects to start filing public financial reports no later than April 30, 2012.” This doesn't necessarily mean they will offer stock publicly, though it would allow them to raise additional funds and reach the projected valuation.
Reality Check Time
Facebook is a progressive, innovative company with leadership driven by their shared vision of what it could be 5, 10, or 15 years down the road. The strides they’ve made in changing the way we communicate and build relationships are inarguable.
But an IPO of this size would make Facebook worth 23 times its projected annual revenue of $4.27 billion (according to eMarketer, which updated the projection reflected in this chart with a statement in September); in contrast, Google trades at 6.5 times their projected annual revenue, and Microsoft at 2.8 times.
An IPO could mean a loss of managerial control and a fundamental change in the way decisions are made at Facebook, especially if stockholders are restless to increase the pace of its growth or more heavily monetize the site.
Could Facebook maintain its current direction and justify a value 23 times its annual revenue with the increased pressure of accountability to outside investors? How it would affect their user-centric vision is unknown.
Based on a $100 billion valuation and Zuckerberg’s estimated 24 percent stake in the company, this could make him worth $24 billion and widen the gap between the Facebook founder and his counterparts at Google. Sergey Brin and Larry Page are each worth about $16.7 billion, according to Forbes.
What do you think of the Facebook IPO hype? Would you be in line to scoop up shares if offered to the public? Let us know why in the comments.