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Facebook Files Initial Public Offering Papers


From NPR News, this is ALL THINGS CONSIDERED. I'm Audie Cornish.


And I'm Melissa Block. Facebook is about to find out how many friends it has. The social networking giant wants to sell shares to the public. It filed papers for an initial public offering today. With about 800 million users, Facebook is one of the most visible companies in the world. But until now, the financial side of Facebook has remained largely a mystery. NPR's Steve Henn joins us now to pull back the curtain a bit. And the question, Steve, that a lot of people are wondering about is just how much Facebook is worth?

STEVE HENN, BYLINE: Well, most analysts expect Facebook to be valued at close to $100 billion when stocks finally start trading on Wall Street. As the date of the IPO nears, underwriters will set a stock price, and that will peg Facebook's value, but that day is still a long way off. The filing says that trading probably won't start until next quarter. But shares of Facebook have been trading on private markets for years. So early employees and investors have been able to sell their stake to wealthy individuals in places and exchanges like SecondMarket and Sharepost. Recent trades on those private markets placed the value of Facebook already well above $80 billion.

BLOCK: Now, in the papers that Facebook filed today, they say they want to raise $5 billion in cash. Explain how that works. What would they do with that cash?

HENN: Well, they're just selling a slice of ownership in the company. And, you know, Facebook has been making a profit for years. It didn't need to raise money. It has plenty of cash on hand. But the thing this will allow Facebook to do that it hasn't done in the past - at least it hasn't done that aggressively - is begin to buy up other technology startups, both here in Silicon Valley and around the world. So that's one of the things it gets out of this. But really, Facebook's hand was forced. It had more than 500 shareholders. And SEC rules require that it either file public disclosures or go public this year.

BLOCK: Now, we mentioned those 800 million Facebook users. A lot of people will be wondering in the papers today, do we get a sense of how profitable this company is?

HENN: Well, they had close to $4 billion in revenue, and they have very healthy margins. So, you know, that's a lot of money. But if Wall Street ends up valuing the company at something close to $100 billion, it will still make Facebook an extremely expensive company to invest in. Anant Sundaram is a professor at Dartmouth's Tuck School of Business.

DR. ANANT SUNDARAM: If I was a long-term investor thinking of this as a potential investment opportunity, I would hesitate.

HENN: Sundaram says to justify its price of Facebook shares that Facebook will sell at, it would need to grow at something like 30 percent a year for the next 10 years. And for today's investors to actually make money, it would have to grow faster than that. So to justify these kinds of valuations, Sundaram says Facebook and Google together would need to control something like a quarter of the entire global advertising market by the end of the next decade. So is that possible? Maybe. But he doesn't think it's likely.

BLOCK: Steve, will this IPO help Facebook take on its big Internet rivals, companies like Google and Apple?

HENN: Well, that's, you know, that's one of the really interesting things. Certainly having a store of $5 billion in cash to invest in new startups or hot new ideas will be helpful. But one of the things that Facebook's had going for it for years and that it's used to its advantage is it's been able to lure some of the most talented engineers from companies like Google with the promise of stock options. Now, that it's going public it's going to lose that lure. So I think it's going to be harder for it to attract and retain talent.

Many of Facebook's most valuable employees are going to become independently wealthy because of this. And so I think motivating the company and sort of achieving the kind of performance that investors are betting on is going to be a challenge. It'll be interesting to watch.

BLOCK: OK. NPR's Steve Henn reporting from Silicon Valley, talking about Facebook filing for an IPO today. Steve, thanks very much.

HENN: Thank you. Transcript provided by NPR, Copyright NPR.