Wednesday Grok: Facebook IPO could raise $10 billion

$100 billion valuation looks a bit toppy for an initial offer

The herd is running hard with the idea that Facebook will finally IPO in April next year, following a report in the <i>Wall Street Journal</i> (WSJ). The $100 billion figure is being bandied around loosely, but that's pretty much where Facebook seemed to be heading before it peaked in value on the secondary markets.

Lately, if anything, the notional value has been drifting back a little as the smart money decided to sit out the later auctions. Grok doesn't, can't and won't give investment advice, but all the same we suggest you pay close attention to that last point before you open your wallet. Still, Facebook like Groupon before it has "punter appeal". And Facebook has something else as well — a business model that will stand up to scrutiny, and who knows how many different ways there are of slicing and dicing its 800 million users (of whom 500 million reportedly log in every day) to carve up advertising markets.

Although we couldn't find a specific reference to a figure, it looks like Facebook will offer up about 10 per cent of the business initially. That's almost double the tardy 5.6 floated by the last big thing currently heading south on the markets. The 10 per cent comes from applying simple maths to the original WSJ story, in case you were wondering. Given that Facebook might account for up to 25 per cent of all the page views in the US in any given week, it's easy to understand why people find it hard to imagine anything but upside.

Still, $100 billion feels a little toppy to Grok, which doesn't mean it won't happen. Just maybe that it shouldn't, at least not yet. By way of comparison, Google's IPO valued it at about $23 billion in 2004 and it’s now worth over eight times that amount.

After its initial report, the Journal also posted a blog speculating on how much Mark Zuckerberg might conceivably be worth after the float — $24 billion apparently.

But not really, since 90 per cent of the company will still be privately held, and Grok has always held firm to the view that it's not real money until someone writes the check. After all, a lot can go wrong with that other 90 per cent in the meantime.

According to the WSJ, "The math here is easy: Zuckerberg would be worth $24 billion if Facebook’s listing values it at $100 billion. David Kirkpatrick, who gained extensive access to Facebook’s executive team for his 2010 book ‘The Facebook Effect’, offered a few estimates in his book. He wrote that co-founder Dustin Moskovitz (who is no longer with the company) owns 6 per cent while spurned co-founder Eduardo Saverin (also no longer with the company) owns 5 per cent. Early executive Sean Parker owns 4%, he said, while early investor Peter Thiel owns 3 per cent."

For its part, Techcrunch issued a cautionary note on the IPO and the possibility that "greedy stockholders" might do damage. "To date, Facebook has been conservative with monetization and progressive with product development. It minimizes ad real-estate in favor of maintaining a healthy user experience for the long term, and pushes products people might not warm up to for years. But outside stockholders could detract from Facebook’s vision and momentum. They could push for faster returns, and pressure the company to display more ads, turn mobile into a direct revenue stream, and play it safe with product.."

Over at the <i>The Australian</i>, and in front of its paywall, the paper offers an explanation for the current timing of the IPO. "With an SEC ruling that requires any company with 500 shareholders and $US10 million in assets to publicly disclose its financial information coming into force soon, sources close to the company have said Facebook is seriously preparing for a 2012 initial offering."

The Oz also provides an excellent breakdown of who owns Facebook, with staff still owning the biggest block at 30 per cent, and as mentioned earlier the Boy King himself is still holding 24 per cent.

Andrew Birmingham is the CEO of Silicon Gully Investments. Follow him on Twitter @ag_birmingham

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