Facebook may go public as soon as the first quarter of 2012. The valuation could be pegged at north of $100 billion, according to people familiar with the matter cited by CNBC.
Last month was the first time we heard that Facebook's business was growing faster than previously forecasted and the company's profits were increasing quickly enough to make a valuation of $100 billion justifiable. So the $100 billion number isn't new, but the Q1 2012 timeframe certainly is.
The company's initial public offering (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. Facebook expects to cross the 500-investor threshold this year, and so it will likely want to launch a formal IPO in advance of a public-company reporting obligation that would kick in April 2012, said the sources.
Another factor motivating Facebook to hurry up the process is the desire 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.
Unsurprisingly, Facebook is not commenting on the timing or details of an IPO. Last month, however, the company's chief operating officer Sheryl Sandberg called a Facebook IPO "inevitable" and described it as "the next thing that happens."
Because Facebook is not a public company yet, valuations are currently based off purchases and sales of shares on sites that allow trading of private companies. As a result, the numbers put forward are always mind boggling.
Two months ago, a private-market transaction of 100,000 shares of Facebook Class B Common Stock priced at $32.00 apiece gave the website a valuation of $80 billion. Three months ago, Facebook was valued at $65 billion, when investment firm General Atlantic reportedly bought 0.1 percent of Facebook by purchasing roughly 2.5 million Facebook shares from former Facebook employees. Four months ago, Kleiner Perkins Caufield & Byers (KPCB) invested $38 million in Facebook, which was only worth 0.00073 percent of the social network, but still resulted in a valuation of $52 billion.
All these valuations should be compared to $50 billion, because this is the only number that Facebook officially confirmed. Five months ago, the company 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.
If the $100 billion number ends up going through, it will mean that Facebook's valuation will have doubled in about a year. 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.