Facebook Inc. has put a price tag on itself of as much as $96-billion (U.S.), and this week senior executives will take to the road to pitch investors on the biggest technology IPO ever.
The eight-year-old company is targeting an initial share price between $28 and $35, which translates into a valuation of between $77-billion and $96-billion. If Facebook can drum up enough investor interest to launch at the high end of that range, it will be worth twice as much as tech-services giant Hewlett-Packard Co., the original Silicon Valley startup and now the world's largest maker of PCs.
Facebook will try to convince investors that its shares are worth almost 100 times earnings, tapping bullish sentiment that sees an almost unparalleled growth trajectory for the world's largest social networking community that is already one of the most popular destinations on the Internet.
But executives, including founder Mark Zuckerberg and chief operating officer Sheryl Sandberg, are certain to face tough questions this week about how they plan to turn the actions of more than 900 million active users into a steadily growing stream of cash.
Facebook's first publicly filed quarterly financial statement shows declining revenue, sliding profit and rising costs, causing critics to claim that the company's fastest period of growth may already be behind it.
Sales dipped to $1.06-billion in the first quarter from $1.13-billion in the fourth quarter and profit slipped to $2.05-million from $302-million.
What's even more concerning is mounting complaints from companies that advertise on Facebook. Many say the young company provides little means of measuring the effectiveness of ad campaigns, which for the most part are built using traditional banner ads.
"We think it is a weak revenue stream. If [Facebook executives]don't do more to unlock the value, then that revenue could be in danger," says Nate Elliot, a vice-president and principal analyst with Forrester Research Inc.
Facebook has done a fantastic job of creating a unique service for its consumers, but it has failed to match that level of innovation when it comes to working with advertisers, he says, adding the company probably has only 18 to 24 months to address the issue.
"It's been shocking really, [Facebook's]inability to help marketers," Mr. Elliot says. "Hundreds of thousands of companies are buying ads on Facebook and very few of them are seeing a return."
The Menlo, Calif.-based company is expected to raise more than $13-billion in the IPO, although it hasn't specified what it will do with the windfall. Mr. Zuckerberg's stake in the company could be worth nearly $18.7-billion on May 18, when the IPO is expected to launch.