That's the big question now that the planned flotation is official.
Much-anticipated details of the hottest flotation for years have just been revealed, and it appears that Facebook plans to raise $5bn, not the $10bn we had previously anticipated.
The filing document also revealed financial information that we could previously only speculate over, and we learn that 2011 revenues came in at $3.7bn, which is towards the lower end of the $3-6bn range suggested. But from that, Facebook generated a net profit of $1bn, up 65% on the previous year.
Remarkably, the site enjoys visits from 443 million users per day, and 845 million every month.
A new ethos?
Founder Mark Zuckerberg, who owns 28.4% of the company, said in a letter to shareholders:
"Facebook was not originally founded to be a company. We've always cared primarily about our social mission, the services we're building and the people who use them. [...]
Most great people care primarily about building and being a part of great things, but they also want to make money. Through the process of building a team – and also building a developer community, advertising market and investor base – I've developed a deep appreciation for how building a strong company with a strong economic engine and strong growth can be the best way to align many people to solve important problems.
Simply put: we don't build services to make money; we make money to build better services."
So, the key question, should we buy the shares?
An optimistic valuation
Well, the estimated market capitalisation of $100bn values the company at 100 times last year's profits. By comparison, the previous internet flotation darling, Google (NASDAQ: GOOG.US), at $187bn, is valued at only around 20 times profits.
It's arguable that Facebook has greater expansion potential and deserves to be valued more loftily, but there's an awful lot of growth already built into those estimates.
Currently, Facebook's revenues come mostly from online advertising, and to generate the fivefold increase needed to get that valuation multiple down to Google's level, we'd need something like 4 billion or more regular users, with the advertising value of each extra eyeball staying the same. That's two thirds of the planet's population, and it's not going to happen.
The value of eyeballs
The obvious alternative, of course, is to make each user more profitable. Last year, Facebook generated about $5 in revenue per user, which is way behind the $27 per user enjoyed by Google. At the moment, it's far from clear how Facebook intends to raise the revenue value of those users.
The other problem lies in the very small free float. With only 5% of Facebook's shares up for grabs, this looks very much like a testing-the-water issue, and poor liquidity may well result in high volatility.
On currently released information and plans, I think the valuation estimates are just too high. But we'll see them refined as we get closer to the flotation date -- it's still early days yet.
More from Alan Oscroft:
> The Motley Fool owns shares in Google.
