Facebook Goes Public

By: Sonat Tasman & Rebekah Lowe

Amid the hundreds of ethnic groups, races, nations and languages in the world, there’s one thing that millions of people have in common: Facebook. 845 million people are part of this social network, of which 483 million are daily users. Who would have thought that a one campus website started eight years ago by a bored 20-year-old Harvard student would grow into an international company worth billions of dollars today?

Fast forward to 2012, founder Mark Zuckerberg is playing with the idea of launching the company into the stock market. He was originally worried that an introduction of the company to the stock exchange would have a negative effect on the company values. On February 1st, Facebook executives filed Initial Public Offering (I.P.O.) documents with US security regulators; Facebook is officially going public and the operation will be headed by Morgan Stanley & Co. Morgan Stanley is particularly experienced with introducing high-tech companies to the stock market, with previous clients like LinkedIn, Groupon, and Zynga. It is hopeful that selling shares will raise the company’s value by $5 billion, which could make its net value somewhere between $75 and $100 billion dollars in the near future. This would be the fourth most important American I.P.O. closely following companies such as Visa, General Motors, and AT&T. In the online sector, it will overthrow Google, which entered the stock market in 2004, raising $1.9 billion, making their total value approximately $23 billion.

Between 2009 and 2011, Facebook’s total revenue was multiplied by 5.15. According to E-Marketer, it increased from $738 million to $3.8 billion. This company has huge potential from an investor’s point of view. Facebook brings together a unique audience of 845 million internet users, turning it into an advertising heaven. It is, in fact, home to 28% of online advertisements, surpassing Yahoo! (11%). Because Facebook analyzes and stores information about its users including the places they’ve been, their interests and every link that they ‘like’, it is full of information that can help companies learn about their target audience.

Yet investors may be hesitant. They believe it is possible that Facebook could turn out like MySpace, as if there was some fatality in the decline of social networks. History has shown this to be true with failures of sites such as Ping, Sprouter, Google Buzz, Friendster and The Hub. It is also worrisome that user growth has slowed in some mature markets. In Canada and the U.S., Facebook added only three million users in the last quarter of 2011, less than half as much what it had added in the previous quarter.

So is the introduction of Facebook into stock exchanges good or bad? There is a question that investors must ask themselves before they make any definite decisions: in light of all the pros and cons, is Facebook really worth $100 billion?