Will Facebook's IPO change history?

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Will Facebook's IPO change history?
2/2/2012 6:47:15 PM
Category: History of Business

Facebook filed for its highly anticipated initial public offering (IPO) this week, The Wall Street Journal reports. The social network hopes to raise as much as $10 billion (valued between $75 billion and $100 billion) making it one of the largest IPOs of all-time and placing the move as an important footnote in the history of business.

According to TIME Business, Facebook's projected IPO would be the 12th largest in American history, trailing such well-known brands as UPS, Kraft Foods, AT&T and Visa. ABC News reports that it's likely to be the largest internet IPO of all-time, easily surpassing Dutch company World Online's $2.8 billion issue in 2000.

The importance of Facebook's IPO can be seen in the high-profile investment banks that are involved in the move. ABC News notes in a separate article that Morgan Stanley has taken on the role as lead investor, with Goldman Sachs, Bank of America, Merrill Lynch, Barclays Capital and JP Morgan also included.

Founder Mark Zuckerberg had put off an IPO for quite some time, focusing on churning out a high-quality product rather than stock price. However, with profits of $1 billion last year from $3.71 billion in revenues, it seems the time has come.

"There is a huge need and a huge opportunity to get everyone in the world connected, to give everyone a voice and to help transform society for the future," said Zuckerberg, in a letter to investors. "The scale of the technology and infrastructure that must be built is unprecedented, and we believe this is the most important problem we can focus on."

Facebook has made the majority (85 percent) of its profits off of advertising, as the number of ads delivered on the site grew 42 percent from 2010 to 2011, The Wall Street Journal reports. The average price per ad also rose by 18 percent.

The remainder of the company's profits come from social gaming, made popular by Zynga's FarmVille. Specifically, Facebook generated $557 million in revenue from social gaming partners and the sale of virtual goods to players.

Facebook's overall profits were up 65 percent in 2011 - a feat that not many newly public web companies can attest to. However, expenses followed - its research and development team's costs rose from $9 million in 2010 to $114 million in 2011. This was due primarily to staff growth and equity compensation, as its employee base increased from 2,172 in December 2010 to 3,200 this past December.

The overall economy - especially in Silicon Valley - will also be affected by the move.

California developer Leonard Mezhvinsky explains to ABC News that the ripple effect of Facebook's massive offering will be huge.

For instance, Silicon Valley real estate is likely to enjoy a healthy uptick. Mezhvinsky said he's already seen an increase in San Francisco real estate interest, as early investors - who will soon become multi-millionaires when Facebook hits the stock market - are anticipating a large cash-out.

"The Facebook IPO will create in an instant multiple millionaires who when they sell their stock to cash out will be looking for higher-end properties in and outside San Francisco," Mezhvinsky told the media outlet.

He's also said he has heard rumors that speculators are grabbing property near Facebook's headquarters in Palo Alto, hoping to flip them to company employees who suddenly have millions of dollars to spend.

It remains to be seen how well Facebook will handle becoming a public business, and if it's able to keep both its user base and advertisers happy while balancing privacy and profit demands, notes WSJ.

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