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
| | Google | Renren | LinkedIn | Groupon | Zynga | | Facebook |
|---|
| IPO Date | 8/19/2004 | 5/3/2011 | 5/18/2011 | 11/3/2011 | 12/15/2011 | | 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 IPO | 2,292 | 1,570 | 1,288 | 2,416 | 2,789 | | 3,200 |
| Age of firm at IPO | 6 | 9 | 8 | 3 | 4 | | 8 |
How much is Facebook really worth?
| | Google | LinkedIn | Groupon | Zynga | Renren | Baidu | Tencent | | Average | | Facebook |
|---|
| Financials* | | | | | | | | | | | |
| 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)*** | 5.2x | 12.8x | 8.4x | 6.7x | 6.5x | 19x | 9.4x | | 11.1x | | 23.2x |
| EV/EBITDA (2011)*** | 11.1x | 82.1x | n/a | 25.3x | n/a | 32.8x | 19.9x | | 34.9x | | 42x |
| | | | | | | | | | | | |
| Growth Milestones | | | | | | | | | | | |
| Year Founded | 1998 | 2003 | 2008 | 2007 | 2002 | 2000 | 1998 | | - | | 2004 |
| Years to… | | | | | | | | | | | |
| $1B Revenue | 5 | ? | 3 | 4 | ? | 10 | 10 | | 6.4 | | 6 |
| $1B Operating Income | 7 | ? | ? | ? | ? | 11 | 11 | | 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 | |
|---|
| Employees: | 3,200 |
| Incorporation: | 2004 |
| 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 Financials | 2008 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.