Facebook Files for IPO

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Facebook (NASDAQ:FB) has filed for their S-1 documents with the Securities & Exchange Commission (SEC) on the 1st February, 2012, opening the door to the Initial Public Offering of stock in the wildly successful company. Founded only 8 years ago by Mark Zuckerberg, at that time a 19-year old Harvard student, the enterprise produced $3.7 billion in revenue in 2011 , as disclosed in the filing.  The filing indicates that Facebook anticipates raising $5 billion in addtional operating capital through the IPO.

Mr. Zuckerberg has repeatedly stated that his concern has never been about Facebook as a company, but as a concept being conceived and continually growing.  In fact, he reiterated his vision in his letter to potential shareholders, saying, “As I said above, Facebook was not originally founded to be a company. We’ve always cared primarily about our social mission, the services we’re building and the people who use them. This is a different approach for a public company to take.”  Given his passion for Facebook and its creative control, as well as his propensity for privacy, it’s rather clear that filing for the IPO did not come so much as a matter of choice as a matter of necessity. As far back as 2010 Sheryl Sandberg, Chief Operating Officer, has indicated that an IPO would be inevitable as she foresaw Facebook’s private investors approaching the magic number of 500, at which U.S. federal regulations require quarterly financial disclosures of even privately held companies.

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CEO Concerns

  • Privacy – Considered a priceless commodity by Zuckerberg, the filing reveals financials, practices, and strategies to the public, and submits itself to public audits. Facebook is at the forefront of efforts to retain privacy both for certain company matters and for users of their services.
  • Control – Facebook shares are of two issue types, “A” and “B”. Each “A” share is entitled to one vote on important shareholder matters. Each “B” share is entitled to 10 votes.  Mr. Zuckerberg owns 28.4% of the outsanding “B” shares. All told, his voting rights represent a 57% majority.  Although he intends to sell some of his current shares, it is not likely that he will do anything to minimize his ability to lead and control the company.
  • Succession – As part of the filing, Mr. Zuckerberg retains the right to name his successor.
  • Focus – Mr. Zuckerberg’s priority is for Facebook’s employees to focus on the creation and delivery of superior services to their customers. When a company goes public, there is a tendency to shift focus to shareholder return. It is evident that Mr. Zuckerberg believes that optimal shareholder return is a natural by-product of delivering superior goods and services. In his own words, from a letter to potential shareholders submitted as part of the filing, “We don’t build services to make money; we make money to build better services.”

Filing Highlights

  • Facebook has 845 million users worldwide.
  • The company has chosen “FB” as its ticker symbol.
  • The company has not yet set a price for its stock.
  • The company has not said how many shares will be sold.
  • The company made $1 billion profit on $3.7 billion in revenues in 2011, both figures being almost double the previous fiscal year.
  • Advertising on Facebook currently accounts for 85% of its revenues.
  • Company R&D costs skyrocketed last year from $9 million in 2010 to $114 million in 2011.
  • The company expects to raise $5 billion through the IPO.
  • The company named Morgan Stanley as lead adviser for the IPO. JP Morgan, Bank of America and Goldman Sachs will have secondary advisory roles.
  • Mark Zuckerberg owns 28.4% of the current shares in the company, but 56.9% of the voting rights.
  • Mr. Zuckerberg retains the right to name his successor.
  • At the end of 2011, Facebook owned 56 patents and had filed applications for 503 more in the U.S. It had 33 corresponding patents and had filed 149 patent applications in foreign countries.
  • The company has not yet decided on which exchange it will trade.
  • The company is under investigation by the SEC for various transactions in the secondary market. The company says that it has operated in compliance with all regulations.
  • No date has been set for the IPO, but, following the norm, the shares could, but do not have to – be floated within the next three months.

Who Is Facebook?

Board of Directors

  • Mark Zuckerberg – Chairman & CEO
  • Sheryl Sandberg – Chief Operating Officer
  • David Ebersman – Chief Financial Officer
  • David Fischer – VP of Marketing & Business Partnerships
  • Mike Schroepfer – VP of Engineering
  • Theodore Ullyot – VP, General Counsel & Secretary
  • Marc Andreessen – Director
  • Erskine Bowles – Director
  • James Breyer – Director
  • Donald Graham – Director & CEO of The Washington Post
  • Reed Hastings – Director & CEO of Netflix
  • Peter Thiel – Director

Management Team

  • Mark Zuckerberg – Founder & CEO
  • Dustin Moskovitz -Co-founder
  • Mike Schroepfer – VP of Engineering
  • Sheryl Sandberg – Chief Operating Officer
  • David Ebersman – Chief Financial Officer
  • Jeff Rothschild – VP of Technology
  • Ben Ling – Senior VP of Development
  • Jonathan Heiliger – VP of Technical Operations
  • Chamath Palihapitiya – VP of Marketing & Operations
  • David Fischer – VP of Marketing & Business Partnerships
  • Elliot Schrage – VP of Global Communications & Public Affairs
  • Theodore Ullyot – General Counsel

Major Investors & Shareholders

Employees

  • Mark Zuckerberg – 533.8 million shares  – 24% stake
  • Marc Andreessen – 3.57 million shares
  • David Ebersman – 2.2 million shares
  • Mike Schroepfer – 2.1 million shares
  • Sheryl Sandberg – 1.9 million shares
  • Jeff Rothschild – 0.8% stake

Former Employees

  • Dustin Moskovitz – Former VP of Engineering & CTO – 134 million shares  – 6% stake
  • Eduardo Saverin – Former employee – 5% stake
  • Sean Parker – Co-founder of Napster & Managing Partner of Founders Fund – 4% stake
  • Chris Hughes – Former employee – 1% stake
  • Matt Cohler – Former VP of Product Management – 0.8% stake
  • Adam D’Angelo – Former CTO – 0.8% stake
  • Ezra Callahan – Former Manager of Internal Communications – 0.08% stake
  • Owen Van Natta – Former COO – 0.8% stake

Venture Capitalists

  • Accel Partners – 201.4 million shares  – 15% stake
  • Greylock Partners – 1.5% stake
  • Meritec Capital Partners – 1.5% stake
  • Elevation Partners – 1.5% stake
  • Western Technogy Inc – 0.5% stake
  • General Atlantic – 0.1% stake
  • Kleiner, Perkins, Caulfield & Byers – 0.073 stake

Corporate Investors

  • Digital Sky – 131 million shares (class A & B)  – 5% stake
  • Microsoft – 1.6% stake
  • Goldman Sachs – 65.9 million shares  – 1% stake
  • Interpublic Group – 0.25% stake
  • T Rowe Price – 18.2 million shares  – 0.25% stake

Angel Investors

  • Peter Thiel – Co-founder of PayPal – 44.7 million shares  – 3% stake
  • Mark Pincus – Co-founder & CEO of Zynga – 0.5% stake
  • Ka-Shing Li – 0.8% stake
  • Theodore Ullyot – 1.9 million shares
  • James Breyer – 1% stake
  • Reid Hoffman – Co-founder of LinkedIn – 0.5% stake
  • Samwer Brothers – 0.1% stake

Other

  • Cameron Winklevoss – 0.022% stake
  • Tyler Winklevoss – 0.022% stake
  • Divya Narendra – 0.022% stake

Related News Updates

  • 16th February 2012 – Bloomberg reported that SharesPost managed the auction of 200,000 shares of Facebook at $42 per share.  SharesPost had handled another auction of 150,000 just one week ago at $44 per share.  Given that the estimated number of outstanding shares is 2.33 billion shares, it would appear that the implied value of Facebook shares is now in the vicinity of $98 billion.  Money manager Lawrence Creatura held things in perspective, however when he said, “The real test of a company’s worth only occurs in the public market.  It’s like trying to forecast an athlete’s performance in a game by looking at historic statistics. Those can help you make an educated guess on things, but anything can happen on game day.”

References

  1.  Key Facts
  2.  ABC News
  3. ↑ New York Post
  4.  Wall Street Journal
  5. ↑ The Huffington Post
  6. ↑ Zuckerberg letter to prospective shareholders
  7.  Washington Post
  8. ↑ Inside Facebook
  9. ↑ LA Times
  10.  The Toronto Star
  11. ↑ Forbes
  12.  The Guardian
  13. ↑ PC World
  14.  Reuters
  15. ↑ Forbes
  16. ↑ San Jose Mercury News
  17.  Business Week
  18. ↑ The Telegraph
  19.  Computer World
  20. ↑ The Verge
  21. ↑ Business Insider
  22. ↑ Who Owns Facebook.com
  23. ↑ USA Today

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