Facebook filed an IPO (Initial Public Offering) with the U.S. Securities and Exchange Commission on Wednesday to raise $5 billion funds, the largest acquisition ever filed for a technology IPO.
Before this IPO announcement was made public, Facebook's financial operations were always a secret. The only fact revealed was the 800 million strong membership that Facebook boasted in the public, which is nearly thrice the U.S. population and equals 11% of the world population.
Facebook reportedly earned over $1billion in sales of net shares worth $3.7 billion in 2011.
Facebook CEO Mark Zuckerberg will be worth more than $20 billion when Facebook floats.
Here are the key points to watch with Zuckerberg's Mega-offering:
Who owns the company?
Mark Zuckerberg, the company's founder, has sold shares to insiders - Tyler, Cameron Winklevoss and Eduardo Saverin. The three partners also enjoy their profile depicted on the Facebook platform.
Besides, the list includes other official partners - Hong Kong tycoon Li Ka-shing, PayPal founder Peter Thiel, LinkedIn CEO Reid Hoffman and Zynga CEO Mark Pincus. The long list also features venture capitalists: Accel Partners, Greylock Ventures and European Founders Fund; investment banks such as Goldman Sachs, and corporations including Microsoft and Russia's Digital Sky Technologies.
The IPO prospectus will lay out net worth of each share holder, besides including the asset list owned by them. What's more? It also adds anything that will be sold in the deal. Zuckerberg apparently sold $100 million worth of shares in 2010 to donate funds to Newark, N.J. School system.
Moreover, shares might have exchanged hands in secondary deals among members as well. Now, the $3.7 billion question is: Who will cash out and how much the two bigwigs - Zuckerberg and COO Sheryl Sandberg, retain?
What is Facebook's revenue turnover potential?
How good are Facebook's chances in minting revenue out of shares sold in IPO, besides sponsorships and advertisements?
The company's $3.7 billion net worth fades out in contrast with Google's reported revenue of $37.9 billion for the year 2011, a hefty growth of 29%. Meanwhile, Yahoo's stocks are pitted at a net worth of $4.98 billion, an alarming slide of 21%.
ComScore, another researcher, reported that Facebook's share of the 2011 market for display ads rose to 27.9 percent from 21 percent in 2010. Yahoo had about 11 percent, with both Google and Microsoft holding shares below 5 percent.
Google shares, traded Tuesday at $576.87, value the Mountain View, Calif.-based company at $187.6 billion. Their price-earnings ratio is 19.37.
Yahoo shares, which traded at $15.45, value the Sunnyvale, Calif.-based company at $19.2 billion and a price-earnings ratio of 18.85. Of course, given Yahoo's recent history, investors like Daniel Loeb's Third Point Capital believe Yahoo's current price masks billions of untapped assets in foreign investments.
By contrast, shareholder Microsoft's market value is $246.5 billion and its price-earnings ratio is 10.64. Goldman Sachs's value is $55.3 billion and price-earnings ratio is 25.4.
How profitable is Facebook?
What kind of scope does Facebook business promise? The company is always committed to spend heavily on technology and software to keep its sites up constantly, adding the costs of engineers and server farms. However, the total costs wouldn't exceed or hit its profit margins given its growth in the recent years.
Many questions pop-up as we dig deep into the company's business culture. Is Facebook a software company? A networking company? An advertiser? How about its role in games and e-commerce?
Google, for instance, is hugely profitable. Its gross margins or revenue minus total costs and expenses is 69 percent. Yahoo's is the same. Microsoft's, for the year ended June 30, was 61 percent.
Zynga, for the nine months ended Sept. 30, reported gross margins of 65 percent. So we can estimate Facebook's profitability is in that range.
What is its growth prospect and what's the competition?
It's obvious that investors are harbouring great hopes in Facebook investments. Who would think of risking it all without lucrative returns in the near future? And how Facebook might change the face of e-commerce?
Is there scope to outgrow a company of size 800 million members?
Yes, one might not look beyond the immediate rival Google, who can do just that. The search engine giant has already acquired 90 million members to sign up for Google+ within the second half of 2011.
Given the pace, the numbers might surpass 115 million in the next quarter and keep doubling that figure every subsequent quarter. That should be alarming signs to Facebook's interests.
Meanwhile, LinkedIn, the professional social networking site, reported 131 million members in the third quarter, a 63 percent gain over 2010.
Perhaps understated, Facebook knows a whole lot about its 800 million members and that data is valuable to advertisers and media. Zuckerberg could use it to launch media ventures, network and other businesses, maybe even create a global bank of e-commerce.
Who'll manage the deal?
Goldman Sachs, already a key investor with purchased clients such as Digital Sky (in 2010), is clearly the leading stake holder. Morgan Stanley, which handled Zynga's December IPO with Goldman, will be the manager and probably rake in the biggest fees amounting to $500 million for each of the bankers. Also, in the deal are JPMorgan Chase, Barclays Capital and Bank of America.
However, the management is of less significance for individuals, proper IPO handling is the key to Facebook's success, as it's got to deal with regulators, handle queries from big investors and ultimately run a roadshow.
Besides, IPO brings out a fair chance to venture capitalists and business individuals to make a fortune with some calculated investment. Facebook members might expect an invite to join the deal with discounted shares or free offers, one may never know of Zuckerberg's fortune plans.
However, managing a deal of this massive proportion would require lot of back-office work and shares auditing. If executed successfully, then the IPO would be the biggest endeavor in recent history.
Must Read: Facebook IPO: Top 10 Richest Shareholders
Must Read: Zuckerberg Beats Google Founders
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