|Facebook IPO is biggest ever tech listing|
Thursday, 02 February 2012 13:10
Social network giant Facebook aims to raise $5 billion in its initial public offering (IPO), making the company's listing the biggest ever in the technology industry to make a debut on a stock exchange.
However, the company's IPO filing has come in at half what the market expected, an indication that founder and CEO, 27-year-old Mark Zuckerberg, does not want to relinquish control of the entity, and that it does not need to raise a huge amount to expand.
Facebook filed its IPO papers with the US Securities Exchange Control yesterday. The filing indicates it is very profitable; last year it turned over $3.71 billion, and made $1 billion in net profit.
However, the filing does not indicate when the company will make its debut, nor the amount of shares it intends to issue and what the initial offering will be priced at.
The social network was founded in 2004 and will turn eight on Saturday. In 2007, Microsoft bought 1.6% of the company, which gave the company an implied value of about $15 billion, according to a timeline compiled by wire service Reuters.
According to the wire service, Facebook is worth $100 billion, far more than other technology giants such as Hewlett-Packard. Zuckerberg will control 56.9% of the voting shares, and his economic stake in the company is worth about $28 billion, making him the fourth-richest American, reports Reuters.
Facebook is available in more than 70 different languages and had an average of 483 million daily active users during December, of which five million are in SA. By the end of last year, there were more than 100 billion “friend connections” and an average of 2.7 billion likes and comments are generated each day.
Arthur Goldstuck, MD of World Wide Worx, says Zuckerberg's aim to keep control and ownership of the company will ensure Facebook has the freedom to experiment and pursue its own vision.
The entity will be less subject to the quarterly reporting syndrome than other technology entities that are so focused on meeting investor expectations that their appetite for risk is curtailed, says Goldstuck.
Facebook “will continue to be bold” and is likely to start looking at acquisitions in the advertising, gaming, search and payment processing space, which it will be able to fund without raising cash, says Goldstuck. “Part of Facebook's vision is to create its own economy.”
Zuckerberg, in a letter filed with the IPO document, says: “We often talk about inventions like the printing press and the television – by simply making communication more efficient, they led to a complete transformation of many important parts of society. They gave more people a voice. They encouraged progress. They changed the way society was organised. They brought us closer together.
“Today, our society has reached another tipping point. We live at a moment when the majority of people in the world have access to the Internet or mobile phones — the raw tools necessary to start sharing what they're thinking, feeling and doing with whomever they want.
“Facebook aspires to build the services that give people the power to share and help them once again transform many of our core institutions and industries. There is a huge need and a huge opportunity to get everyone in the world connected, to give everyone a voice and to help transform society for the future, writes Zuckerberg.
Goldstuck says Facebook's filing “underlines the power of social networks” in the marketplace. “It heralds the next phase in the history of computing and the Internet.”
However, the company says its user base and revenue growth will, inevitably, slow. According to the filing, the social network generates most of its revenue from advertising, which is generated based on its user base.
“Historically, our user growth has been a primary driver of growth in our revenue. Our user growth and revenue growth rates will inevitably slow as we achieve higher market penetration rates, as our revenue increases to higher levels, and as we experience increased competition.”
Facebook says it does not intend declaring dividends and will “retain any future earnings for use in the operation of our business”.
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