In one of the world's most widely anticipated IPOs, or initial public offerings of stocks, Facebook has just taken the first important statutory steps by filing papers with the Securities and Exchange Commission in Washington. If all goes as planned, the company will begin to sell stock by May and start trading on the stock exchange soon thereafter. The prospectus has lots more information besides what is of immediate interest to investors. The IPO has the potential to change the internet sector, creating what will be one of the most valuable internet and technology companies. Analysts say that Facebook is aiming for a far greater offering than the $5 billion planned initially. Its IPO could well be the largest by any company, bigger than Google's in 2004 and Netscape's a decade earlier. Its valuation could be somewhere in the region of $75 to $100 billion, at which point Facebook would be much bigger than many long-established American companies including Abbot Laboratories, Goldman Sachs and Ford. Mind-boggling as this scale is, it suggests that stock markets in the U.S., though weighed down by macroeconomic concerns, are still willing to reward exceptional players.
Facebook, started in a Harvard dormitory room less than eight years ago, says it has 845 million users worldwide. Its prospectus sheds some light on how its meteoric run has turned it into a formidable money making machine. Quite unlike other Silicon Valley start ups which have seen plenty of growth but meagre revenues, Facebook recorded a revenue of $3.7 billion last year on which it earned an amazing $1 billion. Its free cash flow rose from $190 billion in 2010 to $470 billion the next year, while its shareholders' equity increased from $2.2 billion to $4.9 billion during the same period. A public listing of its shares will bring it even more visibility and cash flows but will make it accountable to a larger number of shareholders. The public offer will make millionaires out of its employees and existing investors and its already wealthy CEO Mark Zuckerberg, who will retain a 28.7 per cent stake, even wealthier. Analysts have however warned that small investors out to make quick money might be disappointed. Facebook's growth in the West has been slowing and for all its billions, it makes a small sum — just over one dollar last year — on a per-user basis. Ironically, Facebook does not need capital and is going public mainly to comply with regulations. Without a tangible plan to invest the bulk of the issue proceeds, the company's future profitability might suffer.