The most anticipated flotation in recent years is on.
The days of massive internet company flotations seem like a distant memory to many, but the one we've been waiting for finally appears to be on. Rumours about an initial public offering (IPO) from Facebook have been circulating for a long time, although the company has so far remained tight-lipped about the subject.
But now, according to the Financial Times and the Wall Street Journal, Facebook is about to kick off the process that will end with a public listing later this year. Some are suggesting a market debut in May for the rapidly growing social networking phenomenon, founded by Mark Zuckerberg and fellow students back in the heady days of 2004.
Coincidentally, that was the year Google (NASDAQ: GOOG.US) came to market and raised $1.9bn in what was seen as 'the big one' of its day, but that is set to be dwarfed now.
The biggest internet IPO
An estimated $10bn will be raised from punters who want a stake, potentially valuing the whole of Facebook somewhere between $75bn and $100bn. That's a lot of money for a company that gets most of its income from advertising.
Although a big IPO, it will still only raise half the value of the $20bn issue from General Motors (NYSE: GM.US) in November, which was the largest ever. But, if current expectations are close to the truth, Facebook should have twice the market capitalisation.
Although, as a private company, Facebook doesn't publish its accounts, there are indications that it took in revenues of $1.2bn in the first nine months of 2010, making a $355m profit. But that is potentially just the start, with estimates for 2011 putting total revenues at somewhere between $3bn and $6bn.
But what value?
With the first steps to becoming a public company, in the form of a filing with the Securities and Exchange Commission, expected as early as this week, we should soon be able to flesh out those estimates and get a feel for just how much money Facebook is making from its claimed network of 800 million users.
The flotation price will most likely seem expensive based on traditional metrics, but we're facing austere economic conditions and advertising revenues aren't as high as they might be during better times. So, in some ways, this initial flotation will be testing the water, and investors may well value Facebook's success and future potential considerably more highly than current earnings might suggest.
It is currently unclear who will be handling the underwriting of the issue, but Morgan Stanley and Goldman Sachs are both expected to play a part in it -- so that should provide a nice payday for them.
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> The Motley Fool owns shares in Google.
