All About The 2012 Facebook IPO

We all know that when Facebook goes public this year, Mark Zuckerberg will become very, very rich. But what else is going on here?

If you haven’t heard, all signs are pointing to a Facebook IPO in 2012. And if you have heard, I bet you know exactly two things about that fact: 1. Mark Zuckerberg will become very, very rich. 2. Facebook is HUGE!

True enough. But let’s look into the whole situation a little more deeply with an infographic created by AccountingDegreeOnline. The first bit isn’t totally surprising--but when you see the numbers laid out, it’s rather breathtaking. It’s thought that Facebook’s IPO will raise $10 billion and place Facebook’s value at $100 billion. To put that in perspective, only companies such as Visa and GM have ever raised so much in an IPO. Facebook intends to raise $5 billion in its IPO, against a total valuation of about $100 billion. That $100 billion valuation will make Facebook a more valuable company than McDonald’s:

Now, you might chalk this up to untreated Internet madness, a la 1999. But the thing is, the Facebook IPO becomes more astonishing when you consider the merits of the business. This isn’t like Pets.com. If anything, it’s surprising that the company isn’t thought to be worth more. Just consider: By the end of 2012, Facebook will have signed up more than 1/10th of the human population. The. Human. Population. I’m not sure that any business has ever had such a vast audience of users. Moreover, it will already control 28% of the ads seen online and 1/6th of display-ad revenue in the U.S.:

Take a step back and consider Facebook’s growth prospects. When you use the service, it’s actually surprising that the ads remain as unobtrusive--and as limited--as they are. It’s not gummed up with blinking exhortations. And the ads they do have seem relatively well targeted. The point I’m trying to make is that Facebook hasn’t even begun to test what it can really do with ads--and I have no doubt there are fleets of designers and programmers busily working all that out as I type. (Sure, it’s 4 a.m. right now in Palo Alto, but you know what? No one ever made a billion dollars by being lazy.)

The business analysts who tout the IPO will all tell you that the biggest risk to Facebook’s business model is continuing growth in their ad business. But that’s not it at all: It’s that they’ll constantly need to fight against their own ad-free history, while trying to make more and more ad money. They have to balance giving us, the audience, a good enough service that we’ll put up with more ads. But it’s up to them to figure out how many ads--and what kind of ads--they want to risk.

Thus, companies such as Facebook and Google are in a position quite unlike any other business out there: In some sense, it’s up to them to determine how big they want to get, and how much money is enough. What a hell of a fortunate position to be in.

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30 Comments

  • Momeee

    "Stay Focused & Keep Hacking".

    Zuck is really focusing on maintaining the FB company culture... very smart

  • Joe Cullin

    Thanks for sharing this.  Interesting perspective.

    Some constructive criticism:  You could cut out at least 40% of the text in this graphic, and it would draw viewers' attention to the graphics.

    For example, the text at the very top like, "How do the projected numbers break down?"  -- I'd get rid of that completely.

    Or, on the part that contrasts unique visitors with ad revenue for MS, Google, Yahoo, and Facebook:  all the interesting points that you make are in text.  Try cutting out the text, and seeing if you can convey the idea graphically.

  • SLM

    Pie charts are inherently difficult to discern. This one takes it to another level. 

  • edgargonzalezcom

    Facebook shareholders, could easily qualify as one of the worst designed unreadable pie charts in the  21 st century.....

  • Jd

    Well, given there are only 2bn people connected to the Internet, I'd say their growth is pretty much over before they go public. All those other famous Internet companies were tiny when they started and their growth made people rich. FB is trying it the other way around. Only fools fall for this!

  • Kielib

    PE ratio is found by dividing price/share by the FY EPS (earnings per share) so, Apple is 419.81/27.68 = 15.17 PE (price close a/o last Friday.

  • Brett

    We accept ads on TV, Radio, News Papers, Magazines, etc. However for some reason advertising on the net is frown upon. WHY ? is it.

  • Tim Anderson

    I haven't quite logically thought it through, but my gut reaction is that Facebook is highly overvalued.  I'm a bit interested to see what their expenses are; what are their margins?

    I suspect due to privacy concerns all over the world, or just sheer government regulation (e.g. China) that Facebook will have some limited international growth. My feeling is that they hit market saturation and may have difficulty growing a larger user base and therefore will have to offer other services.

    I think that is where firms like Google, Amazon, and Microsoft (and others) may perform 'better' than Facebook, simply because they offer a breadth of services from which they can derive revenue.

    I believe there is an aura of mystery and sexiness to Facebook that creates a false sense of financial worth.

  • Sanjay

    Sanjay:
    Its fascinating to know that, FB will enter the market with Bang!!!!, what will be the growth prospectus of FB, keeping in mind the strategies that will be adopted by leaders like Google, Micosoft and Yahoo to keep increasing the user base....

  • John

    Dhiram:
    '$4 billion revenue and $100bil valuation. What PE would that be?'

    Depends on the expenses. If there is none at all, the PE would be 25.

  • John

    Funny:
    FB: $4bil revenue, $100bil MktCap = $25 (per each sold $)
    LinkedIn: $0.24bil revenue, $6.8bil MktCap = $28

    Google: $29bil revenue, $202bil MktCap = $7
    Apple: $108bil revenue, $390bil MktCap = $3.6
    Microsoft: $69bil revenue, $238bil = $3.4
    Research In Motion: $22bil revenue, $8bil MktCap = $0.36
    Nokia: $55bil revenue, $19 MktCap = $0.35

  • vinay yerramilli

    How can FB be 1st in Ad revenue with $4.1B when google is making $35 B!! ? Is the article taking just about display ads?

  • Mark

    Nice infographic all around, but the red lines in the Facebook Shareholders graph are so confusing.  What is with the unnecessary complexity?  Why don't the names and pie slices line up with each other to avoid this?  If there was a reason then change the color of each line so I can follow them.