Facebook finally files for IPO
SAN FRANCISCO -- Facebook on Wednesday filed to go public in a bid to raise $5 billion with a mammoth stock offering .
Facebook's IPO has been eagerly anticipated as a defining moment for the latest Web investing boom. The social-networking company, with more than 800 million members, has redefined the way millions of people worldwide interact and share information on the Internet.
A Facebook valuation of roughly $100 billion would rank the company just below McDonald's, which is currently 25th, at $101.5 billion, says Howard Silverblatt at Standard & Poor's.
In the S-1 document filed with the Securities and Exchange Commission Wednesday, the 8-year-old company revealed that it will trade under the ticker symbol "FB" but didn't specify the market in which it will trade.
It also detailed its financials for the first time. In 2011, the company's net income rose 65% to $1 billion. Its revenue rose 88% to $3.7 billion. Facebook is also spending more, with expenses more than doubling to $1.96 billion last year.
Facebook also revealed that it had 845 million monthly active users as of the end of last year, a 39% increase from a year ago.
The daily active users totaled 483 million, up 48%.
Monthly active users who accessed Facebook on mobile devices totaled 425 million, up from 350 million in September.
Facebook gets 2.7 billion likes/comments and 250 million photos a day.
Facebook listed a host of challenges its business faces. The company pointed out that it is heavily dependent on advertising, accounting for 85% of its revenue in 2011. Most of Facebook's advertisers also don't have long-term commitments with the site, meaning Facebook could be hurt if advertisers shift to other venues.
Additionally, Facebook said many of its users access the service using mobile devices, and that growth of these users exceeds the growth rate of overall visitors. But currently, Facebook doesn't present display ads on mobile devices, and Facebook's ability to gather revenue doing so is unproven.
Advertising uncertainty
Once Facebook stock starts trading, the onus is on ramping up revenues to maintain such a lofty valuation. Facebook's fortunes hinge on advertising. Competitor Google raked in $37.9 billion last year, 96% of that from ads.
The good news is Facebook commands a 28% chunk of the U.S. online-display ad impression market, up from 21% a year ago, says market researcher ComScore. Its closest competitor, Yahoo, had 11% of the display-ad market, up slightly from 10.9% in 2010.
The bad news is that Facebook ad sales worldwide are slackening. They grew 104% in 2011 but are expected to climb just 52% to $5.8 billion this year and only 21% to $7 billion next year, according to eMarketer.
"Facebook is not as effective as paid search (on Google, Yahoo and Microsoft)," says Dave Beltramini, director of online strategy for G5, a marketing services firm. "The intent of consumers on Google is more about shopping; on Facebook, people are more social, looking at photos of their friends' kids."
Facebook fares poorly in a key pricing metric used in the industry to measure the value of ad inventory in reaching an audience. Its CPM, or cost per thousand, is 22 cents, less than half the industry average for the Web (50 cents) and minuscule compared with Google ($10 to $12), says Chris Moore, a partner at venture-capital firm Redpoint Ventures.
