An initial public offering like Facebook's doesn't come along every day, or even every decade, and you better believe folks are talking about it. The social networking giant's $5 billion IPO filing revealed a ton of previously unconfirmed data about the company, including how it makes its money and how much it's been making, who and what it fears going forward, who owns how much of it, and much, much more.
Let's take a stroll around the Internets and see what's being said about the biggest and boldest Web 2.0 IPO to date.
The Big Picture
Facebook's S-1 filing was a "brilliant move," according to Tim Loughran, a finance professor at Notre Dame who has previously analyzed the initial offerings of Zynga, Groupon, LinkedIn, and other social media companies. Loughran thinks the company's IPO valuation of "only $5 billion" should make Facebook "a very hot IPO in terms of first-day returns ... $5 billion is not much to spread around to both retail and institutional investors (regardless of the offering price)."
Loughran also expects that a scarcity of shares will raise Facebook's market value in the short-term and propel the company to conduct a follow-on offering later, which could attract "institutional players to take more meaningful positions in Facebook."
But a close look at the numbers provided by Facebook reveals some math that could prove worrisome for investors, he told PCMag—especially given that the company basically admits that the tremendous growth rate of its user base in the past few years can't go on forever.
"Facebook has annual revenue of only $4.39 per active user," Loughran said. "That is a surprisingly low number. Right now, they have 845 million active users. If they get 3 billion active users (a hard-to-imagine number), keeping the assumption of $4.39 revenue for each user, Facebook would have yearly revenue of only $13.17 billion."
By way of comparison, Apple last week reported profits of $13.06 billion—for a single quarter. Loughran's rather dry advice to Mark Zuckerberg and Co.: "Facebook needs to find more ways to get revenue from their users."
Still, the social network's balance sheet looks pretty inviting compared to some other big-time tech firms who held IPOs in recent years, notes TechCrunch's MG Siegler, who tweeted Wednesday: "Facebook has more profit than Google had revenue when they went public."
The Billionaire Friends Club
Facebook's IPO is going to make a handful of people very, very rich, starting with Zuckerberg. How rich? Business Insider breaks it all down for us (and keep in mind, these figures are based on a valuation of $87.5 billion—these already astronomical numbers could wind up higher):
- Zuckerberg, Facebook's co-founder and CEO, owns 533,801,850 Class B shares (or 28.4 percent of the company) which are worth $24.9 billion by Business Insider's calculations. He's also got another $5.6 billion in Class A shares he can exercise.
- Venture capital firm Accel Partners has 201,378,349 shares (11.4 percent) worth $9.98 billion.
- Facebook co-founder Dustin Moskovitz owns 133,763,645 shares (7.6 percent) with an estimated value of $6.65 billion.
- Digital Sky Technologies has 94,567,945 shares in Facebook (5.4 percent) valued at $4.73 billion, plus the investment firm also owns 36,711,928 Class A shares.
- PayPal founder Peter Thiel controls 44,724,100 shares (2.5 percent) worth $2.19 billion.
- Money manager T. Rowe Price owns 12,158,743 shares (0.64 percent) valued at $566.0 million.
- Netscape co-founder Marc Andreesen has 3,571,431 shares (0.19 percent) worth $166.3 million.
- Facebook CFO David Ebersman owns 2,174,999 shares (0.11 percent) valued at $101.3 million, as well as 7,469,424 unvested restricted stock units (RSUs).
- Mike Schroepfer, Facebook's vice president of engineering, controls 2,101,870 shares (0.11 percent) valued at $97.8 million, plus another 6,144,188 RSUs.
- Facebook COO Sheryl Sandberg owns 1,899,986 shares (0.1 percent) valued at $88.4 million, 3.5 million unexercised options, and a whopping 39,321,041 RSUs that would Sandberg a billionaire twice over if she can stick around to vest them.
And those are just the top dogs at Facebook. Business Insider reckons the company's IPO will create "a thousand millionaires" all told.
There's also a blink-and-you'll-miss-it mention in the S-1 filing of Napster founder and former Facebook president Sean Parker (remember him?), who, along with "affiliated entities" is listed as part of a voting agreement by a group of stockholders who have "agreed to vote all of their shares as directed by, and granted an irrevocable proxy to, Mr. Zuckerberg at his discretion on all matters to be voted upon by stockholders."
For more on that, VentureBeat's Jolie O'Dell describes "how Zuckerberg wrested control of Facebook from his shareholders" to turn his 28 percent share of the company into an effective 56.9 percent shareholder votes.
As for how much of the company Parker owns, it's not clear from the S-1 filing, but previous reports have stated that he's got a 4 percent stake worth $2 billion (probably closer to $3.5 billion going by current estimates of the company's valuation), while Facebook co-founder and sometime litigant Eduardo Saverin is reported to control 5 percent of the social network with shares worth $2.5 billion (or maybe $4.4 billion).
Oh, and Bono supposedly has a 1.5 percent stake in the company that could be worth $1.3 billion or more. Yes, that Bono. And people say Ashton Kutcher is a really smart tech investor for a celebrity.
Continue Reading: Zuck's social mission statement, Zynga's influence, and Google+>
The Zuckerberg Doctrine
Zuckerberg included a personal missive in the company's IPO filing that opened with the statement: "Facebook was not originally created to be a company. It was built to accomplish a social mission—to make the world more open and connected."
We can only assume those noble intentions were why Zuckerberg and Facebook co-founders Moskowitz and Saverin waited two whole months after launching the site in 2004 before forming an LLC, and almost two more before incorporating.
Japes aside, Andy Greenberg of Forbes figures Zuckerberg's letter to investors—which includes lines like, "[w]e've always cared primarily about our social mission, the services we're building and the people who use them," etc.—is Facebook's take on Google's famous "Don't Be Evil" credo.
Greenberg also reckons that Zuckerberg's mission statement lays out some high-minded promises that are going to be tough for Facebook to live up to.
"[T] his is a tall order for a soon-to-be-public company in an industry as competitive as Facebook's—possibly the tallest since Google formalized its 'Don't Be Evil' mantra in Larry Page's and Sergey Brin's letter to investors included in that company's IPO filing in 2004," he writes.
Google's taken a lot of stick for mouthing the "Don't Be Evil" line while getting embroiled in various privacy, censorship, and anti-competition controversies, Greenberg points out, and Facebook could be setting itself up for the same reaction to Zuckerberg's purported commitment to a "Hacker Ethic" as outlined in his letter.
"Facebook already faces plenty of ethical questions, and hardly conforms to the 'Hacker Ethic' that Steven Levy first defined more than 25 years ago," Greenberg chides. "The company hoards user data without offering them much visibility or control, frequently updates its privacy policy to push more of their private data into the public sphere by default, and perhaps most importantly, offers virtually no information about how often it hands that voluminous and highly personal data over to the government."
Epicenter's Tim Carmody also seems to find Zuckerberg's "social mission" riff pretty fascinating.
The Zynga Factor
One of the big revelations in the S-1 filing was just how big a chunk of Facebook's revenues get delivered by social game developer Zynga. San Francisco-based Zynga, which had its own initial public offering in December, contributed about $445 million to Facebook's balance sheet last year, or 12 percent of sales.
That looks like a pretty strong strategic partnership, but keep an eye out for trouble in paradise, warns Rita McGrath, an associate professor at the Columbia Business School. As social gaming's technology and revenue models evolve, she says, Facebook and Zynga's BFF status may change.
"The most powerful relationships between partners are when both parties have considerable power and there is low potential for conflict, which has certainly been the case with Facebook and Zynga so far," McGrath told PCMag. But she added that "the emergence of new kinds of rewards and playing fields ... can create tension in the relationship" between even strong strategic partners.
"So you could certainly see conflict over who is going to call the shots with things like augmented reality games on hand-helds, banking-like money transfers that move real dollars into the Zynga world, and control over who captures user data and has the opportunity to resell it. That's when the relationship is likely to become more fraught," McGrath said.
Nothing to Fear But a Mobile Google+
Facebook was pretty upfront in its IPO filing about the challenges it faces in the high-stakes technology market. It's pretty behind the curve on mobile. The company is going to run out of new users eventually.
And as dominant as Facebook is, it's got some serious competitors in the social networking game, none that it takes more seriously than Google+.
Facebook has good reason to be wary of the search giant's rapidly growing social platform. Google has the cash and cache to challenge Facebook, even if Google+ looks puny in comparison right now. Android's massive penetration in the mobile market gives Google the advantage over Facebook in an area the younger company has yet to get a real handle on. Google's also got YouTube and it's shown that it can do video-chatting on Google+ pretty darn well.
Plus, "Google" is hands-down a better verb than "Facebook" is or probably ever will be.
McGrath boils down the competition between Facebook and Google to two companies that are after the same thing but going about it from opposite directions.
"As to Google being Facebook's main competitor, that is probably because both companies are competing to control information about their users," she told PCMag.com. "Google would like to use its social network to enhance what it already knows from 'watching' how we search. Facebook would like users to conduct all their business, search included, with the benefit of social ties."
But Apple is also a major threat to Facebook, opines TechCrunch's Josh Constine. "Google's Android could give preference to Google+ and iOS already uses Twitter as its identity provider and native sharing option," Constine writes. "Google and Apple could effectively box Facebook out of mobile if it doesn't secure stronger relationships with them.
"Additionally, Google and Apple control the native in-app payments systems on their mobile operating systems, preventing Facebook from earning its 30 percent tax on in-app purchases. Facebook has launched an HTML5 mobile app platform but it has failed to gain significant traction. Facebook may need to develop its own mobile OS or wait until HTML5 becomes more powerful, and by then it could be too late to catch up to Apple and Google's mobile app platforms."
For more, see Before Facebook: A Look Back at Major Tech IPOs and Facebook By the Numbers: Steady Growth, Big Profits, as well as the Facebook history slideshow above.