Facebook IPO: Worth $100 Billion or Over-Hyped?

February 3, 2012 Updated: October 1, 2015
A Facebook "like" marks the entrance to Facebook headquarters, pictured on Feb. 3, 2012 in Menlo Park, California. Facebook Inc.'s much awaited initial public offering (IPO) is finally around the corner. (Jan Jekielek/The Epoch Times)
A Facebook "like" marks the entrance to Facebook headquarters, pictured on Feb. 3, 2012 in Menlo Park, California. Facebook Inc.'s much awaited initial public offering (IPO) is finally around the corner. (Jan Jekielek/The Epoch Times)

Facebook Inc.’s much awaited initial public offering (IPO) is finally around the corner, as the social networking giant filed its papers with the U.S. Securities and Exchange Commission and laid bare details of its current financial situation and future plans.

But as details of the Menlo Park, Calif.-based company emerge, one question is bound to emerge in investors’ minds: is the company worth between $75 and $100 billion dollars, based on its initial IPO estimated to be around $5 billion?

In its filing with the SEC, Facebook quoted handsome numbers, saying it had earned revenues of $3.85 billion in 2011, with a profit of $1 billion. More importantly, it revealed that it had 850 million users on its network.

And even more valuable to investors and advertisers, more than 50 percent of those users are active daily users of the service. In addition, around the same number use Facebook mobile from their smartphones.

The question that remains is, how much further can Facebook grow? The social network has shown spectacular growth over the last two years in terms of growing advertising revenue, wooing advertisers and giving them tools to closely target demographics, something that is still a pipe dream for most other online websites and networks due to their lack of demographic information.

But whether past growth will fuel future profits remains to be seen. Facebook appears to be slowing down in terms of growth. While 850 million users is nothing to sneeze at, there is a question of how much more the company can grow, particularly in terms of high-income countries.

In addition to advertising revenue, Facebook also generates revenue from partnerships with its platform and application partners, particularly from gaming company Zynga. Facebook provides the platform for other providers to build applications for Facebook users, some of which charge their users for using their services and share revenue with Facebook.

Facebook also has its share of troubles. It has gotten warnings several times for privacy issues, and settled last year with the Federal Trade Commission around privacy audits. In addition, as strong of a position that Facebook is in, its most imminent threat, as mentioned in the SEC filings, is Google Plus and its growing popularity. Whether Google Plus will challenge Facebook remains to be seen, but it is a thorn in Facebook’s side and is a reminder that the social juggernaut can’t rest on its laurels.

Irrespective of whether Facebook’s IPO is a reflection of the company’s true worth, the IPO is still expected to be piping hot, and several people, including some Facebook employees, are expected to cash out of the IPO.

CEO Mark Zuckerberg himself is estimated to be worth $28 billion after the IPO, which would vault him into the ten richest people in the world and on par with names such as Bill Gates and Warren Buffet.