Facebook announces $5bn IPO

Last night, Facebook founder Mark Zuckerberg filed his intention to take the social network public with the US Securities and Exchange Commission. The flotation of the decade is on.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013

Eight years old. A market cap of around $100bn. 845 million monthly active users. 2.7 billion ‘likes’ and comments every day. 250 million photos uploaded daily. That’s right, Facebook is one of the biggest technology businesses in the world today. And soon, people will be able to own their tiny share of it.

Now that Zuckerberg’s statement of intent has been filed, expect a bit of brouhaha. Facebook is only looking to raise $5bn, half the amount predicted by analysts. To say that these shares will be oversubscribed is a staggering understatement. Not that we know what the share price is likely to be. Or how much of the company will be floated.

We do know that the IPO will value Zuckerberg’s 28.4% stake at the same figure in billions. 'Only in Silicon Valley can a $3.7billion revenue company be valued at $100 billion - that's a serious multiplier!' quips Chris Bishop, founder of  digital media agency 7thingsmedia. But the famously publicity-shy founder is keen to stress that he’s not after just anyone’s money. He wants the right kind of investor to step up.

‘Facebook was not originally created to be a company,’ he says in his filing statement. ‘It was built to accomplish a social mission — to make the world more open and connected. We think it’s important that everyone who invests in Facebook understands what this mission means to us, how we make decisions and why we do the things we do.’

But is this flotation over-hyped? Marketing VP Matt Lawson from advertising platform Marin Software warns that future growth may be stymied by Facebook’s advertising model: ‘A lot of comparisons around Facebook’s IPO are being drawn with Google’s,’ he says. ‘However, in advertising terms it’s not really a comparison of apples with apples. Facebook operates an interruptive advertising format, which intersects a consumers interaction with friends online. Click-through rates for Facebook Ads on average 0.10% vs 2.36% for Google search ads. With the IPO, the pressure is on to produce more innovative paid advertising formats and better monetise the site.’

But Facebook's fate doesn't rely purely on advertising. It's fair to say that if the social network is to thrive, it will probably do so via revenue streams that haven't yet been decided on - or perhaps even invented yet. And this is why Zuckerberg is being so cautious in his mini-float ($5bn is small change to him, after all). Very few new shareholders are likely to have the cojones to spurn a quick buck (one that may damage Facebook's relationship with its users) in favour of long-term, gradual gains. But, by holding on to the lion's-share of control, Zuckerberg retains the power to tell any vultures to go jump.

And, make no mistake, increased revenue relies on the loyalty and growth of Facebook’s user base. As the BBC's technology correspondent Rory Cellan-Jones explains, ‘As it is not a paying service, if you are not the customer, you are the product.’ Facebook cannot generate vast sums in isolation; it is the users, sharing their data and eye-balling ads and featured profiles that are the goldmine here.
 
 But this is a challenge to face tomorrow. Right now, MT is off to ‘like’ Zuckerberg’s new status update: ‘Facebook is now in a flotationship’.

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