There has been much speculation about social networking site Facebook going public since 2007. However, with Mark Zuckerberg, the CEO of Facebook, in no hurry to take the company public, it appears that there is going to be a further delay in the IPO.
Facebook was founded by Mark Zuckerberg, a former Harvard University student, in February 2004. The co-founders include Chris Hughes, Dustin Moskovitz and Eduardo Saverin. This social networking site, which had 1 million active users as of December 2004, has grown to prominence in virtually no time, and as of February 2010 had 400 million active users. The number of active users is expected to swell to 630 million by 2011.
Though Facebook does not disclose financial information to the public as it is a private company, industry sources say that the company is nearly doubling its revenue year-over-year. Facebook's major source of revenue is advertising and according to reports, the company would have generated $600 million-$700 million in revenue in 2009. This year is going to be even better with sources pegging the revenue at $1.2 billion to $2 billion.
While there's no denying that turning the huge customer base into profit is a real issue, Facebook's move to profitability cannot be doubted. Last September, the company announced that it has become cash flow positive, for the first time ever. Though it doesn't mean that Facebook has started making a profit, at least it would not have to rely on financing to fund development and growth.
Facebook has raised more than $600 million from investors since 2007.
In November 2007, Hong Kong billionaire Li Ka-shing invested $60 million for a 0.4% stake in Facebook, and in the following year, invested another $60 million, increasing his stake to 0.8%. The deal at that time valued Facebook at $15 billion.
In May 2009, Russian investment group Digital Sky Technologies acquired a 1.96% stake in Facebook for $200 million, and also had the option to buy an additional $100 million worth stock in the social networking giant from existing employees and investors. The deal at that time valued Facebook at $10 billion. By December of 2009, Digital Sky had increased its stake in Facebook to more than 5%.
Other than international investors, Microsoft Corp. (MSFT) also holds a stake in Facebook, which it acquired in October 2007. Microsoft invested $240 million for a 1.6% stake in Facebook and the deal at that time valued the social-networking company at $15 billion.
In what was thought to be a foundation to becoming a public company, Facebook established a dual-class stock structure last November, giving the founder and other existing shareholders greater control over the company.
Though the dual-class stock structure was viewed by many as the sign of Facebook going public anytime soon, the social networking giant has made it clear that it has no plans to go public in the near term. So, investors who were expecting Facebook to go public this year have reconciled to the fact that it will take another year for them to get a piece of the IPO pie.
Meanwhile, the valuation of Facebook is still being debated. Some investors expect Facebook's valuation to be between $35 billion and $40 billion. SharesPost Inc., an online marketplace for private stock, has tagged Facebook's value at $11.5 billion. According to Jessica Vascellaro, a reporter at Wall Street Journal, some analysts have suggested that Facebook could be worth $59 billion in 2011 and more than $100 billion by 2015.
When Google Inc. (GOOG) went public in August 2004, the company was valued at about $23 billion and after the first day of trading its valuation rose to $27 billion. Google's current stock market capitalization is $176.35 billion. (As on March 4, 2010).
No doubt, the most highly-anticipated Facebook IPO, when it happens, would be an exciting market event for the Web world. But for now, it is a waiting game.
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