Facebook could file papers for an initial public offering (IPO) with the Securities and Exchange Commission (SEC) as early as this coming Wednesday. Furthermore, the social networking giant is close to picking Morgan Stanley as the lead underwriter for its IPO, according to people familiar with the matter cited by The Wall Street Journal.
The timing is still guesswork though: anything can change in today's turbulent market, especially if questions from regulators press too hard. When it comes to the company going public, we've already heard it all: in Q1 2012, Q2 2012, or even later, depending on which rumor and sources you want to believe.
While today's rumor claims Morgan Stanley is likely to friend Menlo Park, there is another contender for the Facebook IPO: Goldman Sachs. Morgan Stanley has led more U.S. and world-wide Internet IPOs than any other Wall Street firm in 2011, and has also been the leading participant in 2011 tech IPOs. Goldman Sachs meanwhile led the league for global IPOs of all kinds last year, and it also ran the social networking giant's private offering. On the other hand, some reports say the bank's relationship with Facebook has been frayed.
The race to lead the management of Facebook's IPO has been a huge deal on Wall Street in the past year, since for investment banks it means tens of millions of dollars in fees, not to mention the bragging rights. Whoever loses out on the lead position will take it as a huge blow, as both have been courting the social networking giant and its executives for months, if not longer.
Both investment banking firms been consistently linked to the long-awaited transaction this year, with rumors switching back and forth between them. The IPO may end up having two or more active managers, so both companies could end up playing a significant role in the deal, and will thus snag significant fees. Since this is still a rumor, Facebook, Morgan Stanley, and Goldman Sachs have all declined to comment.
Facebook co-founder and CEO Mark Zuckerberg has frequently stated, both publicly and privately, that he is against the idea of rushing the company into an IPO. He's worried, like many company founders before him, that he'll lose key employees working on various products to a simple obstacle that plagues everyone: greed. Some workers are supposedly keen to cash out in an IPO, but their boss wants to keep them around until at least the summer in order to complete certain feature rollouts. 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, the company may be motivated to hurry up the process in order to increase employee compensation. In early 2010, Facebook put curbs on employees' ability to sell their company shares privately to other investors. To stop employees from quitting the social networking giant 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. Furthermore, extra money wouldn't hurt: as competition with Google heats up, some extra fire power might be needed.
In December 2010, Facebook announced that it had raised $1.5 billion at a valuation of approximately $50 billion, but that it had no immediate plans for the funds and would simply continue to build and expand its operations. The transaction consisted of two parts: in January 2011, Goldman Sachs completed an oversubscribed offering to its non-US clients in a fund that invested $1 billion in Facebook Class A common stock, while in December 2010, Digital Sky Technologies, The Goldman Sachs Group, and funds managed by Goldman Sachs, invested $500 million in Facebook Class A common stock at the same valuation.
While its valuation is of course still unknown, Menlo Park has been regularly pegged anywhere between $75 billion to $100 billion; investments have been made valuing the company at $70 billion while sales on secondary markets have priced it in the $80 billion. Facebook is projected to raise $10 billion, giving it a valuation of around $100 billion. If those end up being the numbers, the company will create more than 1,000 new millionaires (will your friend be one of them?).
- Facebook's finances leak for Q1 2011 to Q3 2011
- Facebook to double revenue to $4.27 billion, 89% is from ads
- Facebook's revenue doubles to $1.6 billion (report)
- Facebook made $1.86 billion from your content in 2010
- Facebook: advertising rates staying constant even as inventory rises
- WSJ: Facebook growth exceeds expectations, $100 billion valuation justifiable