Facebook IPO Buzz Heats Up

by Tom Taulli | May 3, 2011 11:24 am

The staggering growth of Facebook shows that millions of people have little concern about baring all to the world.  Perhaps it’s really just an ego thing.

Interestingly enough, the founder of Wikileaks, Julian Assange, recently said that Facebook is the “most appalling spying machine ever invented.”  Yes, it would make the KGB proud.

Facebook could also be the best IPO ever invented.  As the company has already tripped the regulatory thresholds, it looks like the social networking operator will hit the markets in the first quarter of 2012.

And expect it to be an all-consuming media event.  According to The Wall Street Journal, it appears that Facebook has blown away the most optimistic expectations for its earnings this year.  Now it looks like the company will generate more than $2 billion in earnings before interest, taxes, depreciation and amortization (EBITDA).  (This is a fancy metric for cash flow).

It’s certainly a happy development for Goldman Sachs (NYSE:GS[1]).  In January, the firm invested in the company at a $50 billion valuation.  It also was able to allocate [2]$1.5 billion in shares to its foreign-based clients (U.S. clients could not participate because of the intense media attention).

While the current valuation of Facebook is not exact, it looks like it is about $70 billion or so.  This is according to some recent auctions from online marketplaces like SharesPost and Second Market.

However, if Facebook can continue its growth, it seems likely that the valuation will be above $100 billion by the time of a public offering.  Keep in mind that would make itw worth more than other major Internet stalwarts, like Amazon.com (Nasdaq:AMZN[3]) and Baidu (Nasdaq:BIDU[4]).

And Facebook appears to be only in the early stages of monetization.  Just last week, the company released its daily-deals program.  In light of Facebook’s massive user base, it could be a big money maker — and also put pressure on Groupon[5].

Such things are still speculative –  as seen with sites like Friendster and MySpace, the consumer Internet space is full of risks.  Besides, the federal government is getting more concerned about privacy matters.  More scrutiny could mute Facebook’s advertising business.

Yet investors will be able to get a taste of the social networking boom this week, with an IPO by Renren.  That company, called the “Facebook of China,” is expected to raise over $700 million.  Not bad for a company that generated only $77 million in revenue last year.

Tom Taulli’s latest book is “All About Short Selling[6]” and his Twitter account is @ttaulli[7].  He does not own a position in any of the stocks named here.

Endnotes:
  1. GS: http://studio-5.financialcontent.com/investplace/quote?Symbol=GS
  2. able to allocate : http://investorplace.com/37693/funds-fill-up-on-facebook/
  3. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  4. BIDU: http://studio-5.financialcontent.com/investplace/quote?Symbol=BIDU
  5. also put pressure on Groupon: http://investorplace.com/38574/facebook-deals-groupon-ipo-coupon-amzn-goo/
  6. All About Short Selling: http://www.amazon.com/All-About-Short-Selling/dp/0071759344/ref=sr_1_1?s=books&ie=UTF8&qid=1302184310&sr=1-1
  7. @ttaulli: http://twitter.com/#!/ttaulli

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