15. June 2011
facebook (Photo: wikipedia.com)
If there is one thing notable about Facebook, besides being the most popular social networking site on the internet, is based on the fact that its founder, Mark Zuckerberg, became a billionaire from a nobody in a miniscule time period of 4 years. The main reason for this sudden explosion of wealth was due the financial backing, the company had from a series of venture capital investments from entities ranging from Accel partners to Goldman Sachs. But its seems that Facebook’s financial destiny is worth much more than its current $50 billion dollar valuation, as the company spokesman was quoted to say that the company plans to release its IPO next year.
This caught many investors off guard, as Zuckerberg had repeatedly told the media that they have no plans to go public, anytime in the near future. But nevertheless the decision for the IPO is not in the hands of the company’s management thanks to the Securities and exchange commission ’500 clause’ act of 1934. The act legally forces a private company in the US to release its financial information to the securities and exchange commission on a quarterly basis , if it has 500 investors or more, and since Facebook is expected to have its 500th investor by the end of the year, it will be indirectly obligated to go public next year.
But even though Zuckerberg is still not very comfortable with the idea, an initial public offering will ensure that the company will be worth at least $100 billion, which is more than twice its current valuation. This new valuation will make Facebook come at par with mega US corporations like Apple and Microsoft, and make it bigger than Cisco and HP in terms of market capitalization. This means that Mark Zuckerberg, who currently owns a 24% stake in the company, would be worth over $25 billion dollars, provided his stake is not diluted from the public offering. Besides making its founders and investors filthy rich, the employees can finally be at peace as they will be able to sell and liquidate their stake without much hurdles, not to mention the fat pay raise they are bound to get in their compensation package.
But the fact that Facebook has had a growth rate of 100000%+ since its inception is a little disturbing, considering that such a increase in stock value can only be rivaled by a financial bubble, or the dot com bubble to be more precise. In spite of all the subtle red flags, it is still to premature to jump to any conclusions, so as investors, in order to avoid a dot com like disaster, all we have to do is keep our eyes and ears open from now onwards.