After days of media speculation, social networking giant Facebook filed its initial public offering (IPO) to US markets watchdog, the Securities and Exchange Commission (SEC), on Wednesday.
For several years, investors have been anticipating Facebook’s IPO
, which has the potential to be one of the largest in a decade (if not in the history of Internet companies).
The $5 billion Facebook hopes to get would eclipse the $1.9 billion Google raised when it went public in 2004. The overall record holder is Visa, which raised $17.4 billion in 2008.
What information has Facebook filed to the SEC?
Facebook filed an “S-1” form, which gives the SEC the legally required information on the financial health of a company. It is just the first in a number of stages before Facebook can begin trading.
The S-1 is hugely important for potential investors as it is the first occasion they will have to review detailed information on the company’s financial structure. In the case of Facebook, investors will be looking for key figures, particularly advertising revenues against the operating costs of a company with such a huge web presence.
How much does Facebook hope to raise?
Companies make IPOs in order to sell a proportion of their capital stock on the markets, thus raising funds needed to secure future development.
Facebook's $5 billion fund-raising target is only preliminary, however, and can be increased based on investor interest. Initial estimates held that Facebook would seek to raise at least $10 billion, which would make it the third largest in history, behind Visa and AT&T.
The Wall Street Journal on Wednesday pointed out that companies have a tendency to under-value themselves while testing the water, so the $5 billion figure is not set in stone.
Who will handle the sale of Facebook’s shares?
Facebook’s founder Mark Zuckerberg will not be heading to the trading floor himself – the responsibility will be given to one, or more, banks who will take a commission on sales. For a flotation of this size, the two likely contenders are Goldman Sachs and Morgan Stanley.
What is the time lapse between filing an IPO and going to market?
It can take up to a year for an IPO to reach the market after it has been filed with the SEC. Historically, however, Internet companies have shown that a debut on the Nasdaq can take considerably less time: the LinkedIn professional networking site took four months, while gift company Groupon and gaming firm Zynga
took about six months.
It is unlikely that Facebook’s listing will take place before the end of spring.
Is this good timing?
The euro zone crisis and the ballooning US debt have not made for particularly confident markets, and investors are thinking twice before letting go of their money. The flotation of Zynga and Groupon, coming in the wake of the US losing its AAA rating, did not go as well as hoped. On the first day of trading, Zynga saw the value of its shares lose 5%, while Groupon's share value has not increased since it was floated.
LinkedIn, however, has seen a market growth of 46% since it was listed – and may have benefitted from hitting the market before the slow summer period.