EXECUTIVE SUMMARY:
By now, most of the connected universe is aware of Facebook’s ballyhooed IPO, through which it plans to raise $5 billion (and perhaps eventually $10 billion) when its shares go public later this spring. The net effect a valuation purported to be $75 billion to $100 billion and hundreds of new millionaires at the 8-year-old social network.
Facebook’s IPO is significant on several fronts. It is seen by many as the ultimate benchmark by which to judge the viability of social stocks on public markets. Furthermore, Facebook’s valuation is expected to be three to five times bigger than Google’s when the search giant went public in 2004, urging direct comparisons and begging questions of froth and sustainability. Lastly, assuming a $100 billion valuation in its IPO, it becomes a bit transcendent to support this purely on revenue premises ($3.7 billion in 2011, good for a 26.9x sales multiple, and 100x P/E ratio on $1 billion of net income). Rather, the deep engagement and sharing data Facebook maintains about the social activity of its user base necessitates traditional valuation experts to rethink the drivers behind market exuberance over a company whose business model is still in an embryonic state.
In this analysis, we mine Facebook’s S-1 filing for data nuggets and trends that tell a deeper narrative, and suggest where Mark Zuckerberg’s social leader may foray next. We look at Facebook’s greatest advantage (its user base), its advertising and payments businesses, and its unique mobile dilemma. We also offer our projections of where Facebook may take the platform next to generate new revenues. Finally, we “go local,” exploring how serious Facebook is about monetizing the SMB market and the related opportunities it may create for agencies, media, resellers and other groups that maintain local business relationships.
Facebook’s Historic IPO: BIA/Kelsey’s Take
