Facebook files papers for US$5bn IPO in May

1 Feb 2012

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In what will go down as the biggest IPO in tech history, social networking giant Facebook today filed for its flotation in May. In the filing, Facebook said it hoped to raise US$5bn initially and revealed it had 845m monthly active users.

The SEC filing also revealed a throve of information about Facebook, such as how dependent it is on online games firm Zynga, which accounts for 12pc of Facebook’s revenues.

In the filing, Facebook revealed that in 2011 it achieved revenues of US$3.7bn, up from US$1.9bn a year earlier. It derived a net profit in 2011 of US$1bn, up from US$606m last year.

Facebook has total assets of US$6.3bn and liabilities of US$1.4bn.

In its filing to the SEC, Facebook revealed that on its social network there are some 2.7bn ‘Likes’ and comments every day, some 250m photos are uploaded daily and there are 100bn friendships on Facebook.

Facebook explained its business model and said it believes it is at the forefront of enabling faster, easier and richer communication between people.

It revealed there were 483m daily active users in December, up 48pc on the previous year, and that it had 425m users who used its mobile products in December.

The company also outlined that it sees a significant opportunity for e-payments, estimating the market to be worth US$14bn in 2014, and how it intends moving it from integration in games to other kinds of apps.

So who gets what when Facebook IPOs in May? Employees of Facebook hold 30pc in the company while founder Mark Zuckerberg holds 24pc of the company’s stock.

Ireland’s own rocker Bono from rock band U2 is set to enjoy a Beautiful (pay) Day when Facebook goes public. The rock star is one of the lead investors in Elevation Partners, a venture capital firm that spent more than €156m for a 1.5pc stake in the social network. Elevation has seen its stake increase more than sevenfold in just more than two years. The shares are now worth between €1.1bn and €2bn.

Other investors include Digital Sky Technologies (10pc), Accel Partners (8pc), Dustin Moskowitz (6pc), Eduardo Saverin (5pc), Sean Parker (4pc), Goldman Sachs clients (3pc), Microsoft (1.3pc), Peter Thiel (3pc), Greylock Partners (1.4pc), Meritech Capital Partners (1.6pc), Chris Hughes (1pc), Li Ka-shing (0.75pc), Interpublic Group (0.5pc) and Goldman Sachs (0.8pc).

Threats to Facebook’s business model

The SEC filing pointed out risks to its business, most notably complex US and foreign laws regarding privacy and the impact of the loss of CEO Mark Zuckerberg or COO Sheryl Sandberg.

Facebook acknowledged its competitive risks, such as how it competes broadly with Google’s social network Google+, as well as the rise of social networks elsewhere in the world, such as Orkut in Brazil and India, Mixi in Japan and Cyworld in Korea.

But most interesting of all was how dependant Facebook is on its relationship with Zynga and how it could be harmed if it was unable to maintain the relationship.

In 2011, Zynga accounted for 12pc of Facebook’s revenues, derived from payment processing fees from Zynga’s sales of virtual goods and from direct advertising purchased by Zynga. In addition, Zynga’s apps generate pages on which Facebook displays ads from other advertisers.

Facebook also revealed it expects its rates of growth to decline over time. Revenues grew 154pc between 2009 and 2010 and 88pc between 2010 and 2011.

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Editor John Kennedy is an award-winning technology journalist.

editorial@siliconrepublic.com