Facebook values itself at $95bn ahead of IPO

The social networking monolith has named a price which will make CEO Mark Zuckerberg one of the richest people in the world.

by Michael Northcott
Last Updated: 19 Aug 2013

Talk has long been brewing about how much it'll cost to get hold of some Facebook stock when it eventually goes public. Well the price has been named, sitting at somewhere between $28 and $35 per share, valuing the company at anywhere between $85bn and $95bn. This will be the largest initial public offering (IPO) of an Internet firm since the World Wide Web began. Wow.

So why such an enormous valuation? Facebook's growth has been formidable in recent years, and it now boasts 900 million users worldwide. That makes it one of the most subscribed services in the world and the finances are starting to show the effect, too: last year the company pulled in $1bn in profits. The company did suffer a blip last week however, announcing a drop in revenue between quarters for the first time in two years, but executives were quick to point to its ongoing investment in mobile platforms as a source for future growth.

Sceptics will note that the figures give a profit multiple of around 90x for the company's valuation, evoking memories of phone number valuations enjoyed during the dotcom-boom back in the late 90s. It's impossible to know whether the value of a social networking website can be sustained: News Corp famously bought MySpace for a whopping $580m back in 2005, only to offload it a few years later for a mere $35m. Ouch.

But Facebook has been in acquisition mode, and doing lots of deals to make its service more comprehensive (and hopefully shore up some of that immense value). Last month it bought photo-sharing service Instagram for $1bn (its most expensive acquisition to date), and also has agreements with Skype and Spotify for running video and music services on Facebook. These elements further cement its position as the leading social network, as they mean fewer and fewer functions are available to would-be competitors to differentiate themselves.

For the time being, only 10% of the company is being made available for public trading, and Mark Zuckerberg will remain the controlling shareholder, as his 31.5% share of the company controls 57.3% of the voting power. At the top end of the price range, the upcoming IPO would make Zuckerberg the 33rd richest person in the world on Forbes' list, with a fortune of $17.6bn.

With that kind of money, he could buy each of his 900 million users a decent lunch. Who's going to be the first to ask?

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