Is the Timing Right for a Facebook IPO?

Facebook is contemplating the idea raising about $10 billion in an IPO that would value the predominant social-networking website at more than $100 billion.  At $10 billion, the offering would raise significantly more money than any other technology IPO, and Facebook expects investors to be eager to buy into the social-networking company.  The IPO would overshadow that of the previous record holder, Infineon Technologies AG, which generated $5.23 billion in its 1999 debut.  Agere Systems Inc., which raised $4.14 billion in 2000, currently occupies second place.

Mark Zuckerberg, Facebook’s 27-year-old founder and CEO, will undoubtedly be rewarded by the website’s rise.  A valuation of $100 billion will further increase Zuckerberg’s net worth which had earlier been estimated at $17 billion, according to Forbes magazine.

Facebook expects federal regulators to call for the firm to disclose its financial results by April 30, 2012 — if it doesn’t go public sooner.  Facebook chose to wait until next year to launch its IPO to give CEO Mark Zuckerberg extra time to add users and increase sales.  Facebook, which has a staggering 800 million users, is also increasing its focus on mobile technology, aiming to leverage the shift to smart phones and tablets.  The firm expects its next billion users to connect primarily via mobile devices, rather than desktop computers.

Zuckerberg noted that an IPO isn’t something he has spent “a lot of time on a day-to-day basis thinking about.  We’ve made this implicit promise to our investors and to our employees that by compensating them with equity and by giving them equity, that at some point we’re going to make that equity worth something publicly and in a liquid way.  Now, the promise isn’t that we’re going to do it on any kind of short-term time horizon.  The promise is that we’re going to build this company so that it’s great over the long term.  And that we’re always making these decisions for the long term, but at some point we’ll do that.

Writing in the New York Times’ “Deal Book” column, Steven M. Davidoff isn’t certain that this is the correct time for a Facebook IPO.  “Facebook is in a corner.  Another Internet hotshot, Groupon, is trading below its offering price, and the market for internet initial public offerings over all appears to be deflating.  The European sovereign debt crisis isn’t helping the market gloom.  The coming months are shaping up to be a bad time to undertake an IPO.  Still, Facebook will almost certainly have to go public during this time whether it wants to or not — and whether or not it can get a valuation of $100 billion or more in doing so.  And it’s partly Facebook’s fault — it just has too many shareholders.  Securities regulation requires a United States company with 500 or more shareholders of record to begin filing reports, including audited financial information, with the Securities and Exchange Commission four months after the year it exceeds this threshold.  Facebook most likely exceeded 500 shareholders this year.  By the end of April 2012, it will become subject to this heightened regulation and have to disclose a spate of confidential business information.”

What does the prospect of an IPO mean to potential investors? TechCrunch writer Josh Constine wasn’t optimistic in a post bluntly titled “Why Greedy Stockholders and a $100 Billion IPO Could Hurt Facebook.” Constine says that if Facebook becomes subject to the desire of its stockholders, the site will innovate less by making profit a higher priority than user experience.  For example, more ads are likely to pop up on users’ pages.  “Outside stockholders could detract from Facebook’s vision and momentum,” he wrote.  “They could push for faster returns, and pressure the company to display more ads, turn mobile into a direct revenue stream, and play it safe with product.  This might produce short-term gains, but could hamper what CEO Mark Zuckerberg has built into a core communications utility for the world.”