Facebook : Poor revenues, Rich valuation

From left to right
Pic 01 : McDonalds is world largest and established franchise operations. Yet it's valued equal to Facebook.

Pic 02: Caterpillar Inc is world's largest equipment-construction manufacturer. Should it be lower valuation than Facebook? Its patents, plants, technology and engineering talents are worth less than Facebook's software?

Pic 03: The guy at the right place and the right time. Youngest billionaire - the ONLY one who hit it rich at age 17. Do you think there are others like him?


Facebook Inc., the social- networking website that in eight years changed the way the world communicates, filed to raise $5 billion in the largest Internet initial public offering on record.

Facebook doesn't need the IPO funding in view of its profitability and many willing private investors. Then why does it go for listing? Likely, it the war of talent, Facebook wants to lock in its 3,000 employee talents by issuing employee shares option exercisable in a future time. To improve its trusted status for stakeholders like clients and suppliers to deal with it. To increase its profile in developing countries that will generate more new facebook accounts.

Facebook named Morgan Stanley as the lead underwriter on the IPO, while reporting a 24-fold increase in sales over the past four years to $3.71 billion in 2011.
The planned IPO dwarfs Google Inc.’s 2004 offering and tests whether social-networking providers deserve market values that rival such established companies as McDonald’s Corp. last traded shares at $99.06 valuing the company just over US$101billion while Caterpillar Inc., the world largest construction equipment manufacturer shares at US$113.88 per share valuing the company at US$74.78billion. Both giants are have a sustainable revenues of US$28billion and US$52billion for year 2011. Facebook Inc., California-based company is considering a valuation of $75 billion to $100 billion although its revenues is a measely US$3.7billion so far.


“The $100 billion valuation that’s being tossed around just puts it at a level we’ve never seen,” said Jeffrey Sica, chief investment officer of Morristown, New Jersey-based Sica Wealth Management LLC, which oversees $1 billion. “They have to be able to show that not only do they deserve to be at that level, but they have multiple channels to create new revenue.”

Sales Surge
Co-founded in 2004 by then 19-year-old Mark Zuckerberg, Facebook has grown into the world’s dominant social- networking site, squelching competitors such as MySpace Inc. with its more than 800 million users. While Facebook’s sales almost doubled last year, the company faces increasing competition from rivals such as Google, which debuted its own social-networking service last year, and short-message social site Twitter Inc., the filing shows.

A $100 billion market capitalization would value Facebook at 26.9 times trailing 12-month sales, more than double Google’s valuation when the search-engine operator went public in 2004. Facebook recruited Chief Operating Officer Sheryl Sandberg, a former Google executive, in 2008 to help expand the company globally.

Facebook didn’t specify the number or price of shares it will offer, and the $5 billion amount is a placeholder used to calculate fees and may change. The U.S. Securities and Exchange Commission’s public website suffered a slowdown yesterday as traffic surged, forcing the agency to bring on additional capacity, according to spokesman John Nester.

Social-Media IPOs
Zuckerberg, 27, is the company’s top holder with 28.4 percent of the shares, the filing shows. He also has proxy agreements with fellow stockholders that potentially give him voting control over more than half the shares.

Accel Partners remains the top outside stakeholder with 11.4 percent of the investor votes, while Dustin Moskovitz, one of Zuckerberg’s co-founders, holds 7.6 percent voting power.

Facebook would follow a crop of social-media companies that went public in 2011, the biggest year for U.S. Internet IPOs in more than a decade, according to Bloomberg data. Nineteen companies raised $6.6 billion in 2011, the most since 101 raised $11 billion in 2000, the data show. Professional-networking site LinkedIn Corp., music-streaming service Pandora Media Inc., daily-deal site Groupon Inc. and social-gaming company Zynga Inc. all sold shares last year.

In outlining its potential risks in the filing, Facebook cited hacker attacks, regulatory scrutiny, a shift to mobile technology and rivals such as Google+. The company also said it would face competition in China if it manages to gain access to that market, where its site is currently blocked.

Top Investors - Many Billionaires to come
As the site’s popularity grew, banks, hedge funds and mutual fund companies started buying stock. In January 2011, Facebook said it raised $1.5 billion in a financing round led by Goldman Sachs that valued the company at $50 billion. Goldman Sachs, funds managed by the firm, and Digital Sky Technologies bought $500 million of stock, while Goldman Sachs offered $1 billion of shares to non-U.S. clients.

While Facebook has steadily added users since its creation, it has faced increased scrutiny over its protection of user data. In November, the company agreed to settle privacy complaints with the Federal Trade Commission. The move may help allay criticism that it doesn’t do enough to shield the information it prods users into sharing.