February 1, 2012 10:06 pm

Facebook serves notice on $5bn IPO

Facebook launched the process for its highly anticipated stock market debut, filing papers for a $5bn initial public offering that will turn key shareholders into billionaires, most notably Mark Zuckerberg, the 27-year-old chief executive and co-founder.

Mr Zuckerberg’s 28.4 per cent stake would give him a paper worth of $22.7bn, based on secondary market trading, valuing Facebook at $80bn.

More striking is the absolute control Mr Zuckerberg will retain over the company. He and his close allies own 57 per cent of the company, guaranteeing that he will be able to run Facebook more like the mission-driven public trust he envisioned in his Harvard dorm room eight years ago than a public company beholden to investors.

“Facebook exists to make the world more open and connected, and not just to build a company,” he wrote in a letter to investors in the filing. “Simply put: we don’t build services to make money; we make money to build better services.”

He said these values would lead to more honest and transparent dialogue between every day people and the businesses and governments serving them.

Following years of intense speculation over the details of the company’s social media advertising business, Facebook disclosed for the first time how much money it makes.

For 2011, the company generated $3.7bn in revenues, an 88 per cent jump over the year before. Net income rose 65 per cent in the past year to $1bn, up from $606m in 2010 but lower than analysts had estimated.

Facebook said that it had 845m monthly active users as of December 31, 2011, up 39 per cent from the year before. Daily active users are at 483m, up 48 per cent.

The company showed strong growth in its core advertising business, which accounts for 83 per cent of revenues. Payment transaction fees from Zynga, the social gaming company built on the Facebook platform, accounts for 12 per cent. The remainder comes from transaction fees for sales in other games and digital goods like music and movies.

Facebook IPO in numbers
   
Revenue $3.7bn
Costs $1.9bn
Profit $1bn
Cash on hand $3.9bn
% of revenue from advertising 85%
Zuckerberg bonus first half 2011 $220,500
Users 845m
Mobile users 425m
Friendships 100bn

The company said that it would raise $5bn in the offering, a figure that is likely to rise before the listing likely in May, making the social networking group’s debut the largest in the internet industry since Google.

Morgan Stanley won the lead bank position, with JPMorgan second, and Goldman Sachs third. Bank of America Merrill Lynch, Barclays Capital, and Allen & Company are also involved. Morgan Stanley had similar top billing in the Google IPO, as well as several other prominent technology offerings.

Besides Mr Zuckerberg, early Facebook employees will also be worth billions as a result of the offering, including co-founders Dustin Moskovitz and Eduardo Saverin, and Sean Parker, Facebook’s first president.

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