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February 2, 2012

Facebook files for $5bn IPO

Regulatory filing reveals revenue and user information of Zuckerberg's social network behemoth

By Vinod

Facebook has announced the terms of its Initial Public Offering (IPO) as it looks to raise $5bn in a floatation that could value the social network site at up to $100bn.

Facebook, started by Mark Zuckerberg in his Harvard doom room just eight years ago, has not revealed exact details of stock price or availability.

The filing to the US Securities and Exchange Commission revealed a number of interesting facts and figures about Facebook, information that had only really been guessed at previously.

Zuckerberg’s stake in his creation stands at 28% meaning that if the $100bn valuation proves to be true, his stake would be valued at $28bn.

The site also revealed details of its revenue and profit and how it makes its money. For 2011 revenue at Facebook was $3.71bn, up a massive 88% on 2010, while profit came in at $1bn, up from $606m in 2010. Revenue in 2009 was $777m, with profit of $229m.

Unsurprisingly the vast majority of its 2011 revenue came from advertising on the site – $3.2bn in total. The rest came from payments on the site such as virtual goods in games from Zynga like Farmville. In fact, 12% of Facebook’s 2011 revenue was generated by Zynga, revealing just how much the two firms rely on each other.

However growth in ad revenue appears to be slowing. Ad revenue between 2009 and 2010 grew 145%, but between 2010 and 2011 it went up by just 69%. Facebook may have some work to do ton convince investors that it is a good long term bet.

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The filing also revealed that the company makes no revenue from its mobile platforms, which could potentially cause investors a few headaches if Facebook continues to see traffic grow from mobile platforms such as apps and HTML5 sites.

Facebook now has 845 million active users, with more than half of those being daily active users (DAUs). Total Facebook membership was up 39% between 2010 and 2011 while DAUs was up 48% in the same period.

Zuckerberg’s salary was a modest $483,333 in 2011, with a bonus of $220,500 on top of that. With "other compensation" thrown in, his total payment came to $1.5m, a paltry sum by Silicon Valley standards, certainly compared to Facebook’s standing in the industry. Sheryl Sandberg, COO, was paid just under $31m last year, the vast majority of it from stock awards.

As well as founder Mark Zuckerberg, a number of others will become billionaires when Facebook floats – Dustin Moskovitz, co-founder, owns a shade under 8%, and Napster founder Sean Parker, portrayed by Justin Timberlake in the Facebook film The Social Network, is believed to own 4%.

U2 frontman Bono is also expected to reap the rewards as his Elevation Partners investment firm bought $120m worth of shares in 2010.

Just after the filing was announced, Zuckerberg posted a letter in which is said it was not Facebook’s aim to make money. "Facebook was not originally created to be a company. It was built to accomplish a social mission — to make the world more open and connected," he wrote.

"Simply put: we don’t build services to make money; we make money to build better services. And we think this is a good way to build something. These days I think more and more people want to use services from companies that believe in something beyond simply maximizing profits," he wrote.

The filing is one of the most eagerly anticipated in recent memory and will be the biggest tech IPO since Google floated in 2004.

John Halton, Advertising, Technology and Media partner at Kent-based law firm Cripps Harries Hall, said the Facebook IPO could be the defining moment in the battle between, "four great, consumer technology companies of the 21st century so far: Apple, Amazon, Google and Facebook," he said.

"Apple is based on tight integration of its premium hardware products, Amazon on selling you content, Google on knowing everything about you so it can sell targeted advertising, and Facebook knowing everything about your social life so it can do the same. Although, Facebook is the last of these four companies to go public, in many ways, the story of the next decade in consumer technology will be the story of which of these models proves most effective," Halton concluded.

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