Facebook's listing is giving investors a way to cash in on social media at the height of the phenomenon, as the tech giant goes public in what is likely to be the biggest Internet initial public offering in United States history.
The multibillion-dollar offering on the Nasdaq exchange, which is expected this month, comes on the heels of several big-name social networking deals – including Facebook's own decision to buy social photo firm Instagram for $1-billion (U.S.) Taken together, the moves are raising concerns of another painful tech bubble. Although some investors have made millions from investing in a wave of social media and new technology firms, the precipitous decline of tech industry darlings such as Groupon has left some wondering whether valuations have gotten too high, too quickly.
Still, the listing is an important milestone for Facebook, and highlights the supersonic growth of social media, which was mostly the domain of early adopters five years ago but is now a crucial part of businesses worldwide. By some measures, Facebook is on the verge of overtaking Google as the most visited site on Earth.
Even as Facebook's profit dropped in the first three months of this year, it may well hit the Nasdaq with a valuation higher than many of its more established competitors – as well as any Canadian company.
According to Thursday's regulatory filing, Facebook will offer 180 million shares of class A stock, and stockholders will sell almost as much of their own. The company expects the IPO price to be between $28 and $35 (U.S.). The company could raise more than $13-billion from the IPO, making it one of the most lucrative in recent history. That would also value the entire company at around $85-billion, or roughly the same as the Royal Bank of Canada.
With more than 30 underwriters, Facebook will now hit the road to woo investors in several American cities.
The company has not specified what it plans to do with the money, outlining only in general terms that it may use the cash for acquisitions, expansion and new technology, among other things.
Class A shares, however, give investors little more than a means to cash in on Facebook's success, rather than any say in how the company is run. While class A shares come with one vote each, Facebook's class B shares come with ten – and the majority of class B shares are in the hands of company insiders. Indeed, Facebook CEO Mark Zuckerberg will still control more than 57 per cent of the voting power even after the IPO.
The company also states it has no plan to offer dividends.
Facebook's IPO gives investors a chance to cash in on the growth of social networking by investing in the company at the heart of that craze. Even though Facebook's revenue and user base continue to climb – it recently passed the 900-million monthly active user mark – its profit dropped 12 per cent during the first quarter of this year. Still, the company appears set to smash Internet IPO records when it hits the market as early as this month.
Many of Facebook's challenges, which the company outlined in an earlier regulatory filing this year, still remain. For example, the company still has little means of deriving revenue from Facebook users who access the site on mobile devices. It also has little in the way of independent oversight, with Mr. Zuckerberg still having majority control of almost all aspects of the business. In addition, Facebook still derives a significant portion of its revenue from its partnership with a single company, social game-maker Zynga.
Still, Facebook's massive user growth trajectory will likely convince millions of investors to buy in to the IPO, and the company argues it still has many more users to gain.
"There are more than two billion global Internet users … and we aim to connect all of them," the company said.