Facebook Files for an IPO
February 1, 2012

Status update: Facebook checks in at SEC for $5 billion IPO
Facebook IPO Facebook, the company that encourages us to share more and more about ourselves, has finally opened its books for investors. The social media king registered with the SEC on Wednesday for a $5 billion US IPO, and the numbers are staggering. After just eight years, its monthly active user base has surpassed 800 million and 2011 sales were $3.7 billion. Even after a string of large Internet IPOs from Renren (RENN), LinkedIn (LNKD), Groupon (GRPN) and Zynga (ZNGA), the Facebook offering stands far apart. As was rumored, Morgan Stanley took the coveted lead left spot on the IPO. Also chosen as lead underwriters were J.P. Morgan and Goldman Sachs, which invested $450 million early last year. The ticker was announced as FB, and market rumors have it listing on the New York Stock Exchange.

Ceaseless hype and top tier brand recognition suggest that Facebook will see plenty of demand from institutions and individual investors alike. Last year’s Goldman Sachs deal offers some insight: DealBook reported that the $1.5 billion offering, before being closed to US investors, was heavily oversubscribed. That deal was priced at an implied $50 billion valuation. Since then, Facebook has been trading on private exchanges at valuations as high as $80 billion, in line with a rumored $75 to $100 billion valuation for the IPO, which would make it the most highly valued US IPO in history.

All the attention could be a boon for the IPO market, and we have already seen signs of renewed strength. The FTSE Renaissance US IPO Index is up 11.3% YTD, double the 5.3% YTD gain in the S&P 500. Last month, 20 companies moved forward on their IPOs by announcing pricing terms. Technology has been a major driver of activity, accounting for 34% of completed offerings in the past year. It has also produced some of the best performing IPOs, including InvenSense (INVN), up 111% from its IPO price, Imperva (IMPV), up 83%, and Guidewire, up 46%. Two 2011 IPOs with social components, LinkedIn (LNKD) and Jive Software (JIVE), are up 60% and 23%. Online social gaming company Zynga (ZNGA), after a disappointing debut, has recently climbed 6% above its offer price.

While investors will need to carefully assess the risks and the proposed valuation (once it sets terms), there is certainly cause for all the excitement. Facebook has shown unparalleled user growth, a commitment to innovation (despite the ritual wails of protest with every redesign), and has built a highly successful gaming platform, which keeps users at the site longer. It’s also an advertiser's dream, accessing the intimate social behavior of one in every ten people in the world.

Given the average three month time span between an initial US IPO filing and pricing (during which the SEC provides feedback and reviews updates), a May/June timing for the transaction seems likely. At that point, investors should have at least a preliminary read on Facebook’s 1Q12 results to see if recent actions taken to further monetize its user base and expand its revenue streams are beginning to take hold.

How Facebook compares to major Internet IPOs

 GoogleRenrenLinkedInGrouponZynga     Facebook
IPO Date8/19/20045/3/20115/18/201111/3/201112/15/2011     Spring 2012
Market value at IPO Price (in mm)$24,552$5,828$3,631$13,212$8,934     ~$87,500
Deal size (in mm)$1,666$743$353$700$1,000     ~$10,000
Sales at IPO (in mm)$2,248$77$292$1,299$1,025     $3,711
Net Income at IPO (in mm)$191-$64$16-$574$74     $1,000
No. of Employees at IPO2,2921,5701,2882,4162,789     3,200
Age of firm at IPO69834     8

How much is Facebook really worth?

 GoogleLinkedInGrouponZyngaRenrenBaiduTencent     Average     Facebook
Market Value**$191,094$6,967$14,196$9,470$1,967$44,664$44,102     $44,637     ~$87,500
Sales Growth (2011)32%112%408%90%55%93%54%     121%     100%
Sales$37,905$436$1,290$1,025$106$1,978$3,777     $6,645     $3,711
EBITDA$15,567$68-$101$295$5$6,777$1,973     $3,512     $2,049
EBITDA (% of Sales)41%15%-8%29%5%54%52%     27%     55%
Valuation Multiples                   
Enterprise Value**$150,139$6,823$12,285$7,314$1,930$44,077$42,108     $37,811     ~$86,000
EV/Sales (2011)***5.2x12.8x8.4x6.7x6.5x19x9.4x     11.1x     23.2x
EV/EBITDA (2011)***11.1x82.1xn/a25.3xn/a32.8x19.9x     34.9x     42x
Growth Milestones                   
Year Founded1998200320082007200220001998     -     2004
Years to…                   
$1B Revenue5?34?1010     6.4     6
$1B Operating Income7????1111     9.7     6

* All financials are based on LTM results, presented in millions.

** MV and EV figures are as of 2/1/12. Estimates for Facebook are based on market rumors.

*** Valuation multiples for Google are actual results using net revenue; all others are based on 2011 consensus estimates.

A look at Facebook 
Founder and CEO:Mark Zuckerberg
 2011 Salary: $500k
 Pre-IPO Ownership: 28.2%
COO:Sheryl Sandberg
CFO:David Ebersman (ex-Genentech CFO)
Users (2009):360 million
Users (2010):608 million
Users (2011):845 million
Visits per day:483 million
Key competitors:Google, LinkedIn, Twitter
Expected IPO proceeds:$5 to $10 billion*
Anticipated market cap:$75 to $100 billion*
2011 Financial Data**:Sales: $3,711
 EBITDA: $2,049
 Net Income: $1,000
 Cash Flow from Ops: $1,549
 Free Cash Flow: $943
Balance Sheet Data**:Total Cash: $1,512
 Total Assets: $6,331
 Shareholders’ Equity: $4,899
Historical Financials2008 Revenue: $272
 2009 Revenue: $777
 2010 Revenue: $1,974
 2009 EBITDA: $340
 2010 EBITDA: $1,171
Key Shareholders:Accel Partners, DST Global Limited, Goldman Sachs
Lead underwriters:Morgan Stanley, J.P. Morgan, Goldman Sachs

* Based on market rumors. The S-1 filing states estimated IPO proceeds of $5 billion.

** In millions.

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