Facebook Inc. confirmed widespread speculation Wednesday, saying that it has begun the process that will lead to selling shares to the public.
The world's largest social network site, based in Menlo Park, Calif., has filed a prospectus for an initial public offering, or IPO.
The eight-year-old company, which has more than 800 million users in a network of more than 100 billion connections, is planning a public listing in the second quarter to raise $5 billion US. The firm is estimated to have a total market value of up to $100 billion US.
That would be the most for an internet IPO since Google Inc. and its early backers raised $1.9 billion in 2004. The final amount will likely change as Facebook's bankers gauge the investor demand.
- Founded in 2004.
- 845 million active users.
- $5-billion IPO planned.
- $1-billion profit in 2011.
- $3.71-billion revenue in 2011
- $3.15-billion advertising revenue in 2011.
- Average user spends 7 hours a month on site.
Depending on how long regulators take to review Facebook's IPO documents, the company could be making its stock market debut around the time that CEO Mark Zuckerberg, 27, celebrates his next birthday in May.
The prospectus, an outline of information about the company and the risks faced by its investors, revealed much about the company.
The document showed Facebook had 845 million active users at the end of 2011 and made a profit of $1 billion in 2011, compared with $606 million the year earlier. Revenue reached $3.71 billion, compared with $1.9 billion in 2010.
Advertising revenue last year totalled $3.15 billion, up 68 per cent from $1.87 billion.
The company foresees capital spending of between $1.6 and $1.8 billion in the coming year.
Making the 'world more open'
Zuckerberg may sell some of his shares, which now represent 28.4 per cent ownership in the firm, in the public offering.
In a letter to potential investors released at the same time as the filing, Zuckerberg said Facebook was founded with the mission of making "the world more open and connected."
"We live at a moment when the majority of people in the world have access to the internet or mobile phones — the raw tools necessary to start sharing what they're thinking, feeling and doing with whomever they want," he said.
"Facebook aspires to build the services that give people the power to share and help them once again transform many of our core institutions and industries."
Facebook visitors spend an average of seven hours per month on the website, more than doubling from an average of three hours per month in 2008, according to the research firm comScore Inc.
Using software developed by outside parties — call it the Facebook economy — they share television shows they are watching, songs they are playing and photos of what they are wearing or eating. Facebook says 250 million photos alone are posted on its site each day.
To make money, Facebook sells the promise of highly targeted advertisements based on the information its users share, including interests, hobbies, private thoughts and relationships.
Though most of its revenue comes from ads, Facebook also takes a cut from the money that apps make through its site. For every dollar that "FarmVille" maker Zynga gets for the virtual cows and crops it sells, for example, Facebook gets 30 cents.
Some see parallels with dot.com crash
For all of Facebook's success, the company has had its share of troubles. It went through a series of privacy missteps over the years as it pushed users to disclose more and more information about themselves.
Most recently, the company settled with the U.S. Federal Trade Commission over allegations that it exposed details about people's private lives without getting legally required consent.
Amid the buoyant optimism about Facebook's prospects as a public company, some analysts see troubling parallels to the dot-com boom of the late 1990s, which turned into a devastating bust in the early 2000s. The biggest fear is that some investors will become so enamored with Facebook's brand and brawn that they will try to buy the IPO share with little financial analysis or recognition of the risks.
"It's a one-day circus," said John Fitzgibbon, founder of IPOscoop.com.
The IPOs of Zynga and LinkedIn showed that success isn't guaranteed even for profitable companies with huge followings. Zynga's stock is currently trading just slightly above its IPO price. LinkedIn is considerably higher, but still far below the $122.70 record that it hit on its first trading day.
"It seems there's so much excitement, innovation around internet startups in Silicon Valley and yet a lot of these companies ... have not performed well at all," said Scott Kessler, a Standard & Poor's equity analyst who follows internet stocks.
"The concern is the sustainability of the growth and profitability. It's very, very difficult to prove those things out over a short period of time."
The shares will trade under ticker symbol FB.
Morgan Stanley will be the lead underwriter.