Facebook Files for IPO, Value Could Reach $100 Billion

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Facebook officially filed for an initial public offering (IPO) on Wednesday. The company said in SEC documents that it is seeking to raise US$5 billion in the IPO, a placeholder number that outside observers said is likely to change before the IPO actually takes place. When all is said and done, the IPO could value the company between $75 billion and $100 billion, making it the largest tech IPO in history.

Facebook & a Big Pile o' Money

One of the things we found particularly interesting came in a letter to potential shareholders penned by Facebook CEO Mark Zuckerberg. In that letter, according to The Wall Street Journal, he said that his company would seek to build new products rather than turning Facebook’s focus towards maximizing revenue based on existing products.

“We don’t build services to make money; we make money to build better services,” Mr. Zuckerberg wrote in the letter. “These days I think more and more people want to use services from companies that believe in something beyond simply maximizing profits.”

This strongly echoes the business philosophy of the late Steve Jobs, who often said that Apple’s job was to build great products rather than focus on profits, and that by doing so, the profits would follow. He was highly critical of the idea of focusing on profit for profit’s sake.

According to Walter Isaacson’s biography of the tech icon, Steve Jobs, Mark Zuckerberg was one of the Silicon Valley executives that Mr. Jobs spent time with in the final months of his life, reportedly to try and impart some of his philosophy and experience to those execs. It’s possible that this meeting played a part in the philosophy expressed above, though it’s also possible that Mr. Zuckerberg reached the same conclusions on his own.

In any event, the Facebook IPO is hotly anticipated and has been closely watched over the last 12-18 months. It is currently set to take place sometime in the spring of 2012.

Google currently holds the record for an IPO that valued the company at US$23.9 billion at the time of the IPO, and Facebook is quite likely to blow past that record several times over. Google’s opening price was set at $85 per share—today, Google, which closed at $580.83, up $0.72 (+0.12%), has a market capitalization of $149.8 billion.

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Mr. Zuckerberg wrote in the letter. ?These days I think more and more people want to use services from companies that believe in something beyond simply maximizing profits.?

OK but what does that have to do with Facebook?



If they file for a public offering, how much money can they raise? Are people really this irrational? When there is a bubble or a stock value goes up it goes up incrementally, this means that normally the stock total market value is the value of the last trade multiplied by the number of shares outstanding. This is how the other stocks in the market get their value.

If Facebook has ...an itinital pricing that is say $100B then they will actually receive $100B! This is not rational. Why would anyone buy it, there would not be room for it to go up, and only rational thought is that there would be room to go down.Facebook has a better chance to go out at much less and then run up with incremental stock purchases for value. The investor then gets the value. The way Facebook is positioning the Facebook would receieve this value in real dollars and the investor would then be left to take the fall. Please market, tell me you are rational and will not allow this to occur. The market can not be this dumb! Can’t wait to see what happens. Based on the above, if you buy and give into this overpriced valuation at the begining, then there will not be very far for Facebook to travel upwards. If this upward direction doesn’t exist so strongly, then there would only be down to go. Facebook would then capture there money.Please market don’t forget fundamentals or fundamentals will end up haunting your pocket book leaving you thinking, what happened?Investors should also be concerned about the Facebook’s revenue!  Will their revenue really go up?  I would assume that they will only face more and more competition as other companies enter the market to provide social networking advertising dollars.  The amount of advertising dollars is not unlimited.  Remember, that this current cash flow assumes a year where Google plus didn’t have really strong traction, Google plus alone could hurt their ability to continue at this rate.Right now they are a first mover, but this could be a disadvantage in the advertising revenue business since there are limited total add dollars.  Please consider the above before you buy a share.  There may just be too many shares available!  This math doesn’t add up

Bryan Chaffin

m, the way an IPO works, the company receives only the money from the sale of that portion of the company’s shares that it puts up.

Total valuation is then determined by the share price on the open market multiplied by the total number of shares outstanding.

In this case, Facebook officially says it wants to raise $5 billion, while the various people watching this process say that will turn into a $10 billion goal.  If that’s the case, the valuation would end up being $75-$100 billion, but Facebook would only have received some $10 billion from new investors.

That’s an incredibly abridged description of the process, but the key here is that Facebook does not expect to receive $100 billion from the market.

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