Going public
February 2, 2012
Facebook aims to raise $5 billion (3.8 billion euros) with its initial public offering (IPO), according to paperwork filed with the US Securities Exchange Commission (SEC) this week. But that figure is only a starting point to help the social media company calculate its registration expenses. Some analysts expect the IPO could raise up to $10 billion.
The number of shares on offer and actual date they will be made available are yet to be announced, but experience shows most companies float within three months of applying to the SEC.
Tech sector observers say the IPO could value Facebook at up to $100 billion. That would make Mark Zuckerberg, the company's founder und CEO, the fourth-richest man in the United States.
The IPO prospectus filed on Wednesday shows 27-year-old Zuckerberg would maintain absolute control over the company even it goes public.
Although Zuckerberg only owns a 28-percent stake in Facebook, the company's tiered share structure – as well as early investors' decisions to entrust their votes with the founder - give him with 57 percent of voting power.
Deep pockets
While Zuckerberg holds all the aces in terms on control, Facebook's biggest earner is actually Sheryl Sandberg, a former Google employee who now serves as Facebook's Chief Operating Officer. Sandberg was paid $30.5 million in 2011. Second is head engineer Mark Schroepfer, who received $25 million.
Zuckerberg, who was just 19 years old when he founded the company, earned just $1.5 million as CEO last year. His base salary next year will be set at a symbolic $1. He reminded investors on Wednesday that Facebook "was not originally created to be a company."
"It was built to accomplish a social mission - to make the world more open and connected," Zuckerberg wrote in a letter accompanying the SEC filing.
The challenge now is to convince investors that mission can generate healthy profits.
Do the math
According to its IPO prospectus, some 845 million users log into Facebook each month. The California-based company had a turnover of $3.7 billion in 2011 and posted a net profit of $1 billion.
Most of that money came from advertising and games. Partner company Zynga, which develops popular social media games such as Farmville, generated $440 million of revenue for Facebook in 2011.
Although basic versions of Zynga games are accessible for free, Facebook hopes more users will pay for premium features in the future. Last year an average of 3.4 million customers took the bait – not enough to impress Francis Gaskins, a stock analyst from IPODesktop.com in Los Angeles.
"Facebook is getting 30 percent of its income from half a percent of its users," Gaskins told Bloomberg TV in December. "That doesn't work."
Bigger than Google
If conservative estimates are correct and Facebook raises $5 billion when it goes public, it will still be the biggest IPO in the history of the Internet sector, dwarfing the $1.7 billion generated by search giant Google back in 2004.
If market optimism prevails and Facebook raises $10 billion, its IPO will go into the record books as the fourth biggest float in US history after credit card company Visa, carmaker General Motors and mobile phone provider AT&T Wireless.
Facebook has attracted big money from private investors in the past. As an unlisted company, it is not required to publish detailed information about its performance and funding, but independent estimates suggest it has received between $1.2 billion and $2.3 billion from venture capitalists.
One of Facebook's earliest investors was Peter Thiel, a German-born US entrepreneur. He bought a $500,000 stake in June 2004, just four months after the social network was created by Marc Zuckerberg, Dustin Moskovitz, Chris Hughes und Eduardo Saverin at Harvard University.
Thiel, one of the founders of the Paypal online payment system, made a fortune when auction website Ebay bought his company for $1.5 billion in 2002. He used his share to set up Clarion Capital – a hedge fund that also provides funding for tech start-ups.
One to 6,000
The earlier an investor committed funds to Facebook, the big their share in the company. Thiel, for example, is believed to own about 3 percent of the social network.
If Facebook's post-IPO market capitalization reaches $50 billion, in line with conservative estimates, the stake Thiel bought for $500,000 will be worth $3 billion. That's $6,000 for every dollar he put in.
Jim Breyer is another venture capitalist who stands to reap massive profits. His investment company Accel Partners gave Facebook $12.7 million in 2005, back when the website was know as "thefacebook.com" and was only open to university students.
Bigger investors soon followed. Software giant Microsoft paid $240 million for a stake in Facebook in 2007, while Russian billionaire Yuri Milner invested $400 million in 2009 via two companies: Mail.ru and DST Global. DST increased its stake by another $50 million in January 2011 – the same month US investment bank Goldman Sachs invested $400 million.
Employee windfall
If the IPO goes according to plan, the large number of Facebook employees who've received stock as part of their remuneration packages will become millionaires overnight.
Luxury real estate agent Pierre Buljan is already looking forward to a new property boom in Silicon Valley.
"It's going to have a great effect," Buljan told AFP news agency. "I believe with 1,000 new millionaires, they're going to need a place to live."
Author: Andreas Becker / sje
Editor: Cyrus Farivar