It's been widely expected that Facebook will launch its initial public offering (IPO) in 2012, possibly as soon as the first quarter. Now we're hearing that there may be a later public debut by the social networking giant, according to people familiar with the company cited by the Financial Times.
While other Internet companies, including Evernote and Zynga, have been holding back on their IPO plans amid recent market turbulence, Facebook's plans are apparently changing because of internal interests. LinkedIn, on the other hand, went ahead with its IPO earlier this year. On a mildly related note, market rumors suggest a Facebook-LinkedIn partnership.
Facebook co-founder and CEO Mark Zuckerberg reportedly wants to wait until next September or later in order to keep employees focused on product developments rather than a pay-out. Some employees are supposedly keen to cash out in an IPO, but Zuckerberg wants to keep them around through next summer in order to complete certain feature rollouts.
Facebook's IPO will be most likely triggered by a section of the 1934 Securities and Exchange Act known as "the 500 rule" – once a private company has more than 500 investors, it must begin releasing quarterly financial information to the Securities and Exchange Commission in the first quarter of the following year. Facebook passed the 500-investor threshold this year, and so it will have to start publishing numbers in April 2012.
Previously, the expectation was it would launch a formal IPO in advance of the public-company reporting obligation. Companies do not have to go public after publishing their financial data, but many do so in order to take advantage of market interest and momentum.
Facebook doesn't need to push for an IPO because it really doesn't need the money right now. The advantage of staying private is focus: you don't have to worry about investor phone calls or show up at investor conferences.
On the other hand, Facebook may be motivated to hurry up the process in order to increase employee compensation. Early last year, Facebook put curbs on employees' ability to sell their company shares privately to other investors. To stop employees from quitting Facebook in order to monetize their shares, the company needs to go public so employees can sell their stock on the open market at various times during the year and cash in on their holdings.
Facebook's valuation could end up being north of $100 billion, if it can manage to keep itself significantly ahead of the competition. When Facebook goes public in 2012, we will be able to put all this speculation to rest, though the argument of undervalued versus overvalued likely won't ever stop.
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