Facebook IPO: Is the company really worth $100 billion?

The initial public offer (IPO) of Facebook, one of the most anticipated IPOs of the decade, may finally be here.

According to various media reports, the social networking website is preparing to file the paperwork for an initial public offering that could raise as much as $10 billion and value the company at $75 billion-$100 billion. The filing could come as early as 1 February, and the actual public offering by May.

Reports suggest that Morgan Stanley will be selected as the the lead underwriter for the IPO, although Goldman Sachs is also expected to be involved.

Launched in 2004, Facebook has become one of the world’s most popular websites.

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Here are five things you need to know about the company and its imminent public offer:

[caption id=“attachment_197183” align=“alignleft” width=“380” caption=“From left: Mark Zuckerberg, Dustin Moskovitz and Sean Parker at Facebook headquarters in Palo Alto, Calif. NYTimes”]  [/caption]

One, the IPO could catapult Facebook into the league of the largest public companies in the world, alongside McDonalds and Amazon.com. According to a report in Associated Press, the IPOs of 14 companies would rank higher than Facebook’s, including Visa Inc’s $17.9 billion IPO in March 2008 and world-topper Agricultural Bank of China Ltd., which raised $19.3 billion in July 2010, not including extra shares issued to meet demand.

However, Facebook’s IPO would be the biggest for a US Internet company, and would dwarf the market debut of one of its main rivals, Google Inc. Investment bankers are understandably excited and believe it could revive the IPO market in 2012.

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Two, Facebook will debut on the stock markets in its eighth year after it was founded by Mark Zuckerberg and his college mates in 2004. In comparison, Google’s IPO in 2004 came six years after being founded by Sergey Brin and Larry Page.

The IPO, for sure, has been a long time coming.Even as recently as 2010, Zuckerberg had been reluctant to take the company public, over fears that an “IPO would damage the company’s culture”.

However, Facebook would have had to anyway soon start making its financial information public, a regulatory requirement companies with more than 500 shareholders have to meet (Facebook is reaching that limit) , according to this Statesman report. The report added that Zuckerberg decided it made more sense for Facebook to go public and reap some financial benefit from an IPO, rather than stay private but have to release its financial information.

Three, since Facebook is a private company,there is very little information on how much profit or revenues it actually makes. Currently, it has more than 800 million users and more than 3,000 employees. It makes most of its money through advertising. However, reports say that it generates far less revenue from advertising than does Google.

As a _smartcompany,com.au_ article noted, “The thing to bear in mind is that while the Facebook advertising system is a little less developed than Google’s, it’s not far off in terms of its sophistication.” The Associated Press noted that Google had ad revenueslast year of more than five times what Facebook is expected to get in 2013.

According to a BBC report, a document sent by Goldman Sachs to its clients showed the firm made a net profit of $355 million on revenues of $1.2 billion in the first nine months of 2010.

**Four,**given the huge popularity of Facebook already, there are questions over how much growth really lies ahead for the company. “What we really need to look at is whether we are seeing a plateuing of user growth and engagement,” one expert told Financial Times. Facebook might have a huge subscriber base, but it still has to learn to squeeze more value out of them. “There’s likely stunning growth right now in emerging markets, but we need to see time spent growing, such as users listening to music, watching movies and buying products,” the expert added.

Indeed, there are doubts whether the $100 billion or so valuation for the company is really appropriate.“Facebook a brilliant achievement, but $75-$100bn? Would make Apple look really cheap,” said media magnate Rupert Murdoch on Twitter, according to the BBC.

Five, if the IPO happens in May, which is what some media reports are speculating, it could, nevertheless, turn out to be the perfect birthday gift for Zuckerberg, who turns 28 that month. That will reinforce Zuckerberg’s position as the world’s youngest billionaire.