Although Facebook Founder and CEO Mark Zuckerberg has said he has no interest in taking his company public, it appears that could happen anyway.
There are now indications that the most powerful social networking site in terms of members could be pressured into or is already preparing to take itself public, possibly as early as next year.
These indications come as the Palo Alto, California-based company revealed new details in a 100-page private placement document Goldman Sachs sent to a small group of potential investors that Facebook would be increasing its number of shareholders above 500 this year.
Under Securities and Exchange Commission (SEC) rules, that would force Facebook to begin disclosing public financial information it had previously kept private or go public by April 2012.
In recent interviews, Zuckerberg has said he is in no rush to go public, but that was before the company launched a private equity offering of as much as $1.5 billion through Goldman Sachs Group. There was so much investor demand to get in on the deal that Goldman had to close it down.
Question of value
Before the Goldman deal was announced, investors in the secondary private equity market had reportedly driven Facebook’s estimated valuation to $50 billion. Although that figure has never been validated by Facebook, some analysts have voiced concern that it seems a bit inflated since Facebook’s earnings for the first nine months of 2010 were around $355 million on $1.2 billion in revenue. That would make that valuation approximately 140 times earnings.
Jordan Rohan, an analyst with Stifel Nicolaus, said that while Facebook’s financial performance was strong, it was difficult to value the company based simply on its revenue and net income.
He said to value it accurately, you need to understand whether they are generating cash after all their capital expenditures and that Facebook was most likely spending hundreds of millions of dollars building two giant data centers, and that the cost of those facilities was probably being amortized over several years. Rohan said Facebook’s margins are high and the company appears to be more than doubling in sales every year.
Another analyst, Lou Kerner of Wedbush Securities, said he believed the revenue was in line with what he thought it would be, but the profitability is higher. Kerner predicted that Facebook could be worth as much as $200 billion by 2015.
The SEC had been stepping up its inquiry into the trading of shares in hot private Internet companies such as Facebook, Linkedin and Twitter, specifically the so-called 499 shareholder limit rule.
Facebook says it would cross the 499 shareholder limit by the end of 2011 in the offering memorandum sent to Goldman clients who are being given an opportunity to buy Facebook shares. The document also said Facebook was cooperating with the SEC inquiry.