The $100 billion question of 2012
IF it ever happens, Facebook will be the frenzied float of 2012, with a possible valuation of $100b (£64.4bn).But as Mark Zuckerberg considers the options on whether to publicly list the social media site which has 800m users, senior technology figures are asking how much Facebook will learn from the flotation of another internet giant in 2004. The question on everyone’s lips is will Facebook “do a Google” – largely shunning the Wall Street banking community and creating a retail offer via an auction?
Facebook is considering a flotation in New York that would raise about $10bn (£6.5bn) and value the company at $100bn, making it the largest initial public offering (IPO) by an internet company in history and one that’s likely to be accompanied by a record amount of hype.
Should anything close to these numbers be reached, an IPO will make Zuckerberg one of the world’s richest men and many of Facebook’s 3,000 employees exceedingly wealthy. “Zuckerberg has sought to delay an IPO for as long as possible.”
As 2012 begins, the clock has almost stopped ticking for Facebook’s 27-year old founder to delay further.
Facebook will have to disclose its financial results by the end of April to comply with a US regulation requiring any company with more than 500 shareholders to do so.
While an IPO isn’t a legal requirement of disclosing results, most expect a Facebook float to follow shortly after the company opens its results up to the world.
Whatever a flotation means for Facebook’s long-term future, the company’s far more pressing challenge will be to execute the IPO without any hitches. That’s where David Ebersman, who joined Facebook as its chief financial officer from US biotechnology company Genentech in 2009, stepped in.
The early noises suggested that a Facebook IPO would consign Wall Street banks to a supporting role at best, echoing what Google did almost a decade earlier.
Facebook isn’t yet believed to have picked advisers, and Ebersman is said to have drafted the S-1 registration form, a critical document usually produced by banks, that doubles as a disclosure form for regulators and a marketing brochure for the company selling shares.
“There’s a tendency in the aggregate for Silicon Valley to be sceptical and cynical about Wall Street,” says Lise Buyer, who helped Google organise its IPO when she worked there and now advises companies that are going public on their relations with banks. “A banker’s seal of approval can help persuade an investor but if you’re Facebook you don’t need that.”
The muscle that Facebook brings to the table - the users themselves and revenues estimated to be close to $4bn this year - has led to predictions that Facebook might follow the example Google set in 2004 and sell shares by auction.
The idea, in part, would be to open the sale up to retail investors and sell the shares at a price that reflected true demand, rather than engineering a first day surge for those investors – who are also often clients of the banks – lucky enough to buy the shares at the IPO.
As speculation intensifies about when Facebook will file its S-1 – the moment when the public starting gun on the IPO process is fired – there would be considerable risks in completely avoiding Wall Street.
For a start, Google’s flotation is not seen as an unequivocal success. Google’s shares surged almost 20pc on the first day of trading, prompting accusations the auction system failed to accurately match the amount of shares sold with demand from investors.
Also, Facebook has already used banks to raise funds. In December 2010, Goldman Sachs drummed up $1bn for the company from its wealthiest clients. Even those technology bankers who believe the IPO process needs improving say you need very strong motivation to go public using a system every banker on Wall Street is hoping blows up.
“If you begin to introduce that [the auction] as a mechanism, you erode the value that Wall Street thinks it adds,” said Eric Risley, who was a technology banker at Bank of America and is now a partner at boutique adviser Architect Partners in Silicon Valley. “Wall Street was very pleased that the Google auction failed.”
It will be a surprise if Sheryl Sandberg, Facebook’s chief operating officer, doesn’t use her annual trip to the World Economic Forum at Davos at the end of the month to meet the Wall Street bankers who will also be at the gathering of business leaders in the Swiss ski resort.
The fees generated from taking technology companies public was a rare bright spot for Wall Street in 2011, with Morgan Stanley, Bank of America, JPMorgan Chase and Goldman Sachs making up the four biggest earners, according to Dealogic.
But analysts say that the flotation of video game pioneer Zynga in early December holds cautionary lessons for Facebook. Best known for the games Farmville and Cityville that are played on Facebook, Zynga’s shares ended their first day down 5pc and have yet to reach the $10 mark they were sold for.
Some put the blame on Zynga trying to sell too many shares. It sold 15pc of its stock, almost double the amount offered by professional networking site Linked-In last May. LinkedIn’s shares are now 40pc higher than the $45 they were first sold for.
“A busted Facebook IPO that trades underwater would seriously harm Facebook’s momentum and reputation, with everyone from major advertising agencies to valuable talent Facebook wishes to hire,” says Sam Hamadeh, managing director of PrivCo, a US firm that analyses privately held companies.
Facebook will have to disclose its financial results by the end of April to comply with a US regulation requiring any company with more than 500 shareholders to do so.
While an IPO isn’t a legal requirement of disclosing results, most expect a Facebook float to follow shortly after the company opens its results up to the world.
Whatever a flotation means for Facebook’s long-term future, the company’s far more pressing challenge will be to execute the IPO without any hitches. That’s where David Ebersman, who joined Facebook as its chief financial officer from US biotechnology company Genentech in 2009, stepped in.
The early noises suggested that a Facebook IPO would consign Wall Street banks to a supporting role at best, echoing what Google did almost a decade earlier.
Facebook isn’t yet believed to have picked advisers, and Ebersman is said to have drafted the S-1 registration form, a critical document usually produced by banks, that doubles as a disclosure form for regulators and a marketing brochure for the company selling shares.
“There’s a tendency in the aggregate for Silicon Valley to be sceptical and cynical about Wall Street,” says Lise Buyer, who helped Google organise its IPO when she worked there and now advises companies that are going public on their relations with banks. “A banker’s seal of approval can help persuade an investor but if you’re Facebook you don’t need that.”
The muscle that Facebook brings to the table - the users themselves and revenues estimated to be close to $4bn this year - has led to predictions that Facebook might follow the example Google set in 2004 and sell shares by auction.
The idea, in part, would be to open the sale up to retail investors and sell the shares at a price that reflected true demand, rather than engineering a first day surge for those investors – who are also often clients of the banks – lucky enough to buy the shares at the IPO.
As speculation intensifies about when Facebook will file its S-1 – the moment when the public starting gun on the IPO process is fired – there would be considerable risks in completely avoiding Wall Street.
For a start, Google’s flotation is not seen as an unequivocal success. Google’s shares surged almost 20pc on the first day of trading, prompting accusations the auction system failed to accurately match the amount of shares sold with demand from investors.
Also, Facebook has already used banks to raise funds. In December 2010, Goldman Sachs drummed up $1bn for the company from its wealthiest clients. Even those technology bankers who believe the IPO process needs improving say you need very strong motivation to go public using a system every banker on Wall Street is hoping blows up.
“If you begin to introduce that [the auction] as a mechanism, you erode the value that Wall Street thinks it adds,” said Eric Risley, who was a technology banker at Bank of America and is now a partner at boutique adviser Architect Partners in Silicon Valley. “Wall Street was very pleased that the Google auction failed.”
It will be a surprise if Sheryl Sandberg, Facebook’s chief operating officer, doesn’t use her annual trip to the World Economic Forum at Davos at the end of the month to meet the Wall Street bankers who will also be at the gathering of business leaders in the Swiss ski resort.
The fees generated from taking technology companies public was a rare bright spot for Wall Street in 2011, with Morgan Stanley, Bank of America, JPMorgan Chase and Goldman Sachs making up the four biggest earners, according to Dealogic.
But analysts say that the flotation of video game pioneer Zynga in early December holds cautionary lessons for Facebook. Best known for the games Farmville and Cityville that are played on Facebook, Zynga’s shares ended their first day down 5pc and have yet to reach the $10 mark they were sold for.
Some put the blame on Zynga trying to sell too many shares. It sold 15pc of its stock, almost double the amount offered by professional networking site Linked-In last May. LinkedIn’s shares are now 40pc higher than the $45 they were first sold for.
“A busted Facebook IPO that trades underwater would seriously harm Facebook’s momentum and reputation, with everyone from major advertising agencies to valuable talent Facebook wishes to hire,” says Sam Hamadeh, managing director of PrivCo, a US firm that analyses privately held companies.
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