The social-networking company, which filed for the IPO
yesterday, may be valued at as much as $100 billion in the sale,
two people with knowledge of the matter said last week. At that
level, the company would trade at 26.9 times 2011 sales,
compared with about 5 times for search-engine operator Google,
whose market value has jumped eight-fold since its IPO.
â€œGoogle was an awesome IPO,â€ and its success since is the
reason Facebook can come out at such a high valuation, said Tim
Cunningham, who helps oversee about $75 billion at Thornburg
Investment Management Inc. in Santa Fe, New Mexico. â€œThat hope
and potential is exactly why itâ€™s potentially a $100 billion
Facebook co-founder Mark Zuckerberg is asking investors to
pay more than double the valuation of Googleâ€™s 2004 IPO even as
competition from Google+ and Twitter Inc. increases. Menlo Park,
California-based Facebook wrested the lead in U.S. online
display ads from Yahoo! Inc. (YHOO) in 2011, taking a 16.3 percent
share, according to researcher EMarketer Inc.
Facebook didnâ€™t disclose the number of shares it plans to
sell in its filing yesterday, and the amount it is seeking to
raise may change. The company is considering a valuation of $75
billion to $100 billion, said the people, who declined to be
identified because the matter is private.
Based on the top end of that range, Facebook would be
valued at 100 times its 2011 net income. Fast-growing companiesâ€™
price-to-earnings ratios often start high and gradually fall.
Google, which at its IPO was valued at 121 times trailing 12-
month earnings, now trades at about 20 times.
Sales at Facebook, which became the dominant social-
networking site in 2008 by leapfrogging pioneer MySpace Inc.,
surged 88 percent to $3.71 billion in 2011. Net income in that
period jumped 65 percent to $1 billion. Facebookâ€™s revenue may
rise to $6.5 billion to $6.9 billion this year, EMarketer
The site, which has amassed more than 800 million users,
makes money by selling ads to companies that want to reach that
growing base. Industry wide, spending in the U.S. online display
ad market may surge 20 percent this year, according to
To capture those ad dollars, Facebook will have to find
ways to continue to engage users. U.S. visitors to Facebook in
December spent an average of 7 hours on the service, a 32
percent increase from a year earlier, according to Reston,
Virginia-based researcher ComScore. Visitors spent about 4.5
hours on Googleâ€™s sites and even less on Yahooâ€™s.
â€œThe greatest challenge obviously is keeping the
advertising momentum because advertising is their key source of
revenue,â€ Debra Aho Williamson, an analyst at EMarketer, said
of Facebook. While almost 90 percent of 2011 sales probably came
from ad revenue, Facebook also is seeking new sources, such as
credits that users buy and redeem for goods and services, she
Zuckerberg co-founded Facebook in 2004 with his college
roommates, creating a site that allowed students to interact via
the Web. He later made the service accessible to everyone,
intensifying competition with sites such as MySpace and
Friendster, founded in the two years before.
Neither could fend off Facebook, which had a reputation for
innovative features like News Feed, which lets people check on
friendsâ€™ activities in a single place, said Nate Elliott, an
analyst at Forrester Research Inc. in New York. News Corp. (NWS),
which bought MySpace in 2005, sold the site last year for less
than one-tenth the price it paid. Friendster reinvented itself
as a social-gaming platform following its 2009 purchase by
Malaysiaâ€™s MOL Global Ltd.
Facebook raised $1.5 billion from backers including Goldman
Sachs Group Inc. and Digital Sky Technologies, according to a
January 2011 statement, an investment that implied a total value
of $50 billion for Facebook. The companyâ€™s valuation is
currently pegged at about $74 billion by SharesPost Inc., which
handles trading of closely held companies.
Facebook Versus Groupon
Facebookâ€™s sales indicate the stock would be more than
twice as expensive as Groupon Inc., which raised $805 million in
an IPO in November 2011, including an over-allotment option. The
online coupon site went public at a valuation of $12.8 billion,
or about 10 times sales in the 12 months through Sept. 30. The
company is trading 7.5 percent higher than its IPO price.
LinkedIn Corp. (LNKD), whose IPO price made it more costly than
Salesforce.com Inc., peaked at more than double its offer price
in July. The offering valued LinkedIn at $4.25 billion, or 14.5
times trailing 12-month sales.
Google, one of Facebookâ€™s main competitors in Web
advertising, raised $1.9 billion in its IPO, including an over-
allotment option. Founders Sergey Brin and Larry Page wound up
halving the size of the offering after accounting errors and an
interview with â€œPlayboyâ€ magazine attracted scrutiny from
They priced the shares at $85 apiece, giving Google a
market value of about $23 billion, or about 10 times sales in
the 12 months through June 30, 2004. Today the Mountain View,
California-based company is worth more than $180 billion, making
it the most valuable Internet company.
Like Google, Facebookâ€™s stock â€œhas the potential to stay
very high,â€ said Anupam Palit, a senior equity analyst at the
New York-based GreenCrest Capital Management LLC.
Facebook may achieve an operating margin of more than 40
percent over the next two to three years, according to Palit.
While that puts the company on par with Google, itâ€™s also more
than twice as big as Yahooâ€™s 2012 projection and about 16 times
more than Web-services provider AOL Inc. (AOL), according to data
compiled by Bloomberg.
Sustaining growth and its user base may help Facebook avoid
the fate of AOL and Yahoo, whose fortunes have dimmed since
their 1990s-era IPOs, said Dan Veru, chief investment officer at
Palisade Capital Management LLC.
â€œThe moment you try to hold onto what you have, you end up
like AOL and Yahoo,â€ said Veru, whose Fort Lee, New Jersey-
based firm manages $3.4 billion. â€œThe history of the Internet
industry is littered with franchise-dominant players that are
Yahoo, once the biggest search engine in the U.S., went
public in 1996 at a valuation of more than 200 times annualized
12-month sales, based on the nine-month figure disclosed by
Yahoo in its prospectus then. Following the ouster of CEO Carol Bartz in September, the company trades at about 4 times trailing
12-month sales and is exploring options as revenue sinks.
AOL hasnâ€™t fared any better. More than a decade ago the
company, once the top U.S. Internet service, attempted to
leverage that status by buying Time Warner Inc. (TWX) for $124 billion
in stock and debt, then the largest deal in the countryâ€™s
The AOL-Time Warner combination was ultimately dismantled
in 2009 with a spinoff of Internet operations as subscribers
fled and ad sales plunged. AOLâ€™s market value is now about $1.8
billion, compared with as much as $165 billion before the Time
For Facebook, consistent creativity should help spur sales
growth and keep users interested, said Forresterâ€™s Elliott.
â€œFacebook gives people a reason to come back, more than
any other social space that has gone before, more than any other
social space that we see online today,â€ he said. â€œTheyâ€™re
constantly introducing new features and new ways for people to
engage with the site.â€
To contact the reporters on this story:
Lee Spears in New York at
Brian Womack in San Francisco at
To contact the editors responsible for this story:
Jennifer Sondag at
Tom Giles at