Facebook Goes to Market
Two important internet phenomena have matured recently. Facebook, as a business, has matured enough to be considered a candidate for an initial public offering. Mark Zuckerberg, Facebook’s founder, has matured enough to start wearing a suit and tie as he markets his startup to the investing public. (It seems he hasn’t been able to shift from flip flops to wingtips just yet, opting instead for high quality sneakers.)
Getting Ready for the Public
Facebook has announced that in early 2012, it will file with the Securities and Exchange Commission to issue a public stock offering of the firm. The IPO (Initial Public Offering) is expected to raise $10 billion. How has this formally immature business been preparing to start playing with the big boys?
Sources in the know say that they have been preparing for their new mature profile by practicing scripts for annual meetings, formulating and answering questions from imaginary prospective investors and business analysts and scripting earnings announcements and forecasts. Just like the grownups.
Addressing the Basics
But playing grownup may require addressing some of the fundamentals of a mature company before the public will be willing to invest in a serious way. Facebook is still a midget compared to the giants of the internet industry such as Microsoft and Google. It only has 3,000 employees, compared to 90,000 at Microsoft and 31,000 at Google.
Microsoft has an annualized revenue of $68 billion, Google almost $39 billion. Facebook’s revenues (guessed at, since they are not currently reported) is only about $2.5 billion. Growth at Facebook has been strong and steady, but even it highly optimistic valuation of $100 billion is half of Google’s $200 billion and Microsoft’s $215 billion.
It may not hurt that he has surrounded himself with relatively mature executives, such as his president, Sheryl Sandberg, 42, and his chief financial officer, David Ebersman, 41. As immature as it sounds, Zuckerberg clearly seems to be playing copycat of the giants he admires. But Facebook is only five years old; Google is thirteen years old and Microsoft is practically ancient at 35 years old. Maybe it needs to a little more growing up before such a big step.
One of the biggest fears, not only of Facebook, but also of the stock markets, is that Facebook’s IPO will, well, fall on its face. The two headline internet IPOs of 2011, Groupon and Zynga, saw their prices fall within minutes of the offering, and are down 10% to 12% since introduction. Down is not the direction Facebook wants to grow.
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