Wednesday, February 1, 2012

WANT TO OWN A PART OF FACEBOOK? Time to buy some stocks!!


Facebook unveils stock market flotation plans

Facebook on a monitor
Facebook began in 2004 as a way for Harvard University students to communicate

The world's largest social networking site, Facebook, has announced plans for a stock market flotation.

Facebook said it would seek to raise $5bn, about half the amount many analysts expected.

It is still expected to be the biggest public sale of shares by an internet company.

The rise of Facebook, begun by Harvard University students, has been meteoric, attracting 800 million users in just eight years.

Facebook filed its intention to float with the Securities and Exchange Commission after the US stock markets closed.

The filing revealed that Facebook had revenues of $3.7bn in 2011, and that founder Mark Zuckerberg owns 28.4% of the company.

The story of the company was made the subject of a 2010 Hollywood film, The Social Network, and the firm has made the verb "to friend" a part of everyday language.
Valuation justified
"The company does change when you go public”
End Quote Martha Lane Fox Co-founder of

Valuation justified

Reports have suggested the company could be worth $100bn, roughly the same as US giants Amazon and McDonald's.

Facebook currently makes most of its money from online advertising.

"As it is not a paying service, you are not the customer, you are the product," explains the BBC's technology correspondent Rory Cellan-Jones.

"What Facebook is selling to the world is users' time and their attention, their likes and dislikes, all that time and data they pour into the site, so that they can be very precisely targeted with adverts matching our interests," BBC correspondent says. 

Facebook, the facts

  • 2004: Facebook set up as a network for students at Harvard University
  • 2005: The network expanded to include high school students, attracting 5.5 million users
  • 2006: Yahoo offered $1bn to buy Facebook
  • 2007: Facebook reaches 1 million users in the UK with 50 million users worldwide
  • By 2012 Facebook has 800 million users worldwide

Private to Public
As a private company, Facebook has not had to publish detailed accounts so it has not had to make public whether, or how much, profit it makes. This has been the subject of much speculation, however.

Reports in January last year suggested a document sent by Goldman Sachs to its clients showed the firm made a net profit of $355m on revenues of $1.2bn in the first nine months of 2010. Subsequent estimates about its more recent profits range from $1.5bn to $3.5bn.

Releasing much more detailed information on its finances will become part of the Facebook's duties as a publicly listed firm.

"The company does change when you go public," co-founder of online travel site Martha Lane Fox told the BBC.

"Whatever Mark Zuckerberg says about continuing to run the company for users, for employees, not for shareholders... it does mean there is a level of scrutiny and accountability not known in a private company."

Mega flotations

  • Google: raises $1.67bn for 7% of the company in 2004
  • Rosneft: raises $10.4bn for 15% of the company in 2006
  • Visa: raises $19.1bn for 50% of the company in 2008
  • Agricultural Bank of China: raises $22.1bn in 2010 making it the world's largest IPO to date

Planning the IPO
"The IPO of Facebook is the one that investors have all been waiting for, given that it is now an iconic global brand with huge scope to expand even further," said Phil Wong, stockbroker at Redmayne Bentley.

"The major investment banks have competed to be selected as lead advisors given the status of the firm, and investors are sure to be equally eager to acquire a holding in the business."

Facebook is the latest in a series of online firms to sell shares to the public in recent months.

Online voucher firm Groupon went public in November 2011 and online games maker Zynga in December 2011.

Zynga's stock market value immediately fell below its asking price on the first day of trading, whilst Groupon only climbed past its offer price three months after the float.

Shares in the social networking site Linkedin fell below their May 2011 offer price after its shares became freely tradeable.

However stock market traders remain positive about Facebook's flotation.

"Facebook is worth the expected $80-$100bn valuation because we believe it is and will be the dominant social media platform globally," said Richard Nunn at Charles Stanley Securities.

"It has more than 100m more US users than Google did when it IPO'd, and Google is valued at $180bn, and most importantly for advertisers, the average dwell time of 6hrs 51m per month spent on Facebook trounces the competition by some way.'

**courtesy of BBC News Business**

No comments:

Post a Comment