Facebook's IPO By The Numbers

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By

Dari FitzGerald and Andrew Tonner

Published in Investing on 4 February 2012

A graphical look at 2012's biggest flotation.

A version of this article originally appeared on our US site, Fool.com.

Unless you spent the better part of the week under a rock, you probably heard that Facebook, the game-changing social media giant, officially filed its paperwork to go public this week.  Founded in 2004 by Mark Zuckerberg, the company proceeded to ignite a social phenomenon that drastically altered the way that people interact and connect. 

And while its social implications are already well documented, its clout as a business and investment have largely gone unknown to the general public (although some very wealthy investors have gotten their hands on shares in the meantime).  The filing gave most observers their first real peek into the real business that is Facebook, revealing some interesting figures at the same time, which we break down here in our most recent infographic -- Facebook's Amazing IPO By The Numbers.

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theredflag 04 Feb 2012 , 5:16pm

On any sensible valuation measure, this does not look like a good investment at the mooted flotation figure.

ManInTheStreet 04 Feb 2012 , 8:07pm

So what's their business model? Advertising?

When you use google.com you are searching for something, maybe yo buy. So adverts here can make sense, because you may be actively looking to buy something.

When you use Facebook are you receptive to buying something? Are you not just wanting to keep up with your friends, rather than wanting to buy something? As I never use Facebook I've no idea what 'normal' behaviour is.

Perhaps they want to associate their product or service with your friends, so you'll buy it. But how to get your friends to endorse it?

It all sounds woolly and rather wishful thinking to me.

theredflag 05 Feb 2012 , 10:11am

Advertising in the main I believe, in particular targeted advertising which makes use of details on a person's profile.

Apparently, there are also 'applications' and 'virtual goods'. Read more:

http://howdoesfacebookmakemoney.com/

Would need to keep generating massive increases in profits for many years to come to justify this valuation. Gut feel says that any economic 'moat' they enjoy (which is essentially just the strength of the brand) could be eroded in the future either by a competitor or by some 'game changer' in the technology field which no-one is predicting at present.

goodlifer 05 Feb 2012 , 10:02pm

Great Uncle Ben on IPOs

"It is probably bad policy to get mixed up in this sort of business. Of course the salesman will point to...some which go up spectacularly the very day they are sold. But all this is part of the speculative atmosphere. It is easy money.For every dollar you make..you will be lucky if you end up losing only two.
"Some of these issues may prove excellent buys - a few years later when nobody wants them and they can be had at a small fraction of their true worth."

Seems to fit Essar, Glencore, Ocado and FCSS quite neatly.

Graham01 06 Feb 2012 , 1:38pm

There is no way that facebook can live up to the valuation. Revenues need to grow so massively every year for this to be a fair valuation of the company.

There is no moat to the business model at all, the next networking site will chip away at facebook and will stunt the growth that is factored into the price, if doesn't kill it.

Facebook isn't going to disappear over night, Bebo and MySpace are still going and still bringing in some money but they didn't grow as predicted. NewsCorp lost an estimated 90% from buying MySpace, anyone who buys facebook is likely to face the same kind of loss.

I would be willing to short my entire net worth on facebook and would sleep soundly at night.

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