Stock and awe as Facebook flotation may top $100bn
Facebook has launched the most hotly-anticipated stock market flotation since the dot.com bubble burst more than a decade ago, promising to sell its shares to the public in a deal that will make billionaires of its founders and which could value the company as much as $100bn (£65bn).
In an announcement laden with ambitious declarations and astonishing revelations about the social network's growth, Mark Zuckerberg, the 27-year-old computer whiz who created the company in his Harvard dorm room eight years ago this week, said Facebook was just at the start of “a social mission” to change the way people around the world share information.
“Facebook was not originally founded to be a company,” he said in a letter included in the 199-page share prospectus published yesterday.
“We've always cared primarily about our social mission, the services we're building and the people who use them. This is a different approach for a public company to take.”
It will take Wall Street and technology industry analysts days to digest all the information revealed last night, but what was immediately apparent was how potential investors are being asked to make a bet on Mr Zuckerberg himself.
The Facebook chief executive owns 28% of the company and he will control more than half of the votes, thanks to arrangements with his early backers and because of an unusual share structure designed to limit the power of new shareholders.
If investor demand for Facebook is as high as the excitement over yesterday's announcement suggests, the company could price at the top end of the mooted $75bn-$100bn range, making Mr Zuckerberg worth $28bn (£17bn) on paper.
Mr Zuckerberg's Harvard friend and co-founder Dustin Moskovitz, who stayed with the company until 2008, could be worth more than $7bn (£4.5bn).
More than one-third of Facebook's 3,000 employees could be paper millionaires under the float.
Interest in the Facebook prospectus was so high that its formal publication by the US Securities and Exchange Commission last night slowed the agency's website to a crawl.
The document detailed how quickly Facebook's business has grown. In 2007, just three years after its creation, it brought in revenues of $153m (£100m).
Two years later it brought in five times that amount and turned a maiden profit of $229m (£145m).
Last year it had revenues of $3.7bn, and a profit of $1.0bn.
But analysts say Mr Zuckerberg faces a crucial test to keep his company on an even keel despite the flotation hoopla.
As well as having to ensure that his mega-rich employees keep turning up for work every day, he will have to assure the company's most important asset - its 845 million users - that he will be a responsible guardian of their privacy, despite the demands of his new shareholders to make ever more profit from the use of their personal data.
“Facebook has changed the way companies believe they should market, by making them communicate directly with their customers,” said analyst Debra Aho Williams of the research firm eMarketer.
“Yet it is still at a very early stage of what it could become and the business it could build from the data it has collected and will be capable of collecting, with the host of privacy questions that raises.
“The one thing that has not changed is that Facebook is very comfortable pushing the envelope in terms of what data it collects and what it can use for advertisers.
“At every turn it keeps winning. There have been privacy outcries over each change, but users soon forget - because using Facebook is fun.”
The prospectus included pages of disclosures on the legal risks facing the company, including possible lawsuits over privacy issues and the threat of a clampdown on what could be done with users' personal data under new laws being proposed in Europe and the US.
Nonetheless, the company also lay out the opportunities it saw for providing advertisers the ability to closely target messages based on users' personal preferences, as revealed in their Facebook profile and online habits.
“Late last year, Mr Zuckerberg unveiled a raft of new features designed to encourage users to listen to music, share news stories and video chat with each other, all within the site.
Keeping the company's elite developers focused on building these kinds of new features will be a priority for Mr Zuckerberg in the weeks before and after the flotation, said Kevin Werback, associate professor at the Wharton Business School.
“To the extent that someone went to work at Facebook in its early days because of the prospect of a big pay-off on flotation, it is true that once you get that pay-off it will be harder to motivate them.
“That is potentially why the company waited so long to go public, essentially until they were pushed to do so.
“Management has indicated that they are in it for the long haul and to build a great company that will change the world, and that is something that employees look up to.
“The issue is whether Facebook management says the same thing the day after the flotation as they did the day before.”
October 2003: Mark Zuckerberg (19), a psychology and computer science student at Harvard University, sets up Facemash, where users can rate the attractiveness of fellow students. The website is shut down and he's threatened with expulsion.
September 2006: Facebook, now used by universities, high schools and businesses worldwide, is opened to everyone over 13.
October 2007: Microsoft pays $240m (£151m) for a 1.6% share in the website.
January 2012: Facebook, now with 800 million users, goes public on stock exchange. Zuckerberg's personal stake could be $20bn (£14bn).