Facebook has been one of the most valuable internet properties for a few years now and it just seems to be getting more valuable every year. Like many others, I was very curious to see how the company would be able to generate cash flows from its tens of millions of users but it has continued to show an ability to innovate and remain ahead of its competitors. There has been a lot of discussion about the company’s value, in large part because some companies bought major stakes in Facebook and will of course be looking to make a profit off of its investment
Also, as we had discussed last week, there are a few shares being traded, although not in large quantity. These are done off the market and generally sold by investors or employees that want to cash in immediately without waiting for the company to do its much anticipated IPO.
Who currently owns Facebook???
The more known investor is of course giant Microsoft(MSFT) who beat out a good number of interested buyers that included Google(GOOG). When it invested (2007), it valued Facebook at $15 billion. Since then, Russian company Digital Sky Technologies invested $300 million (mostly valuing Facebook at $10 billion, which to be expected after the stock market crash last year).
But really, what is Facebook’s value?? There is a lot of debate but considering the role that social networks might play in the future but as they become more important to the life of internet users, there is no doubt that there is money to be made. The real question lies in what the exact sources will be. Advertising and digital products & services have been the initial revenue sources for most of these networks. I actually thought this valuation analysis done by TechCrunch is one of the better ways of evaluating the company.
IPO in the works?
And yes, there continue to be signs that the IPO is is coming very soon. The most recent sign came when Facebook announced a two-tiered share structure. This is usually used to give less power to new investors. Think about it for a second. If found Mark Zuckerberg would like to keep control of the company, he can simply give more power to the shares that he owns, and less to the ones that will be sold to the general public… But to most investors, it does not make a difference anyway as there is not much power in holding a few hundred shares of a public company:) Google had done the same move prior to its IPO in 2004.
But as long as they do not need the funds, chances are that they will remain private. Says Zuckerberg. “It’s something we’ll do when we’re ready for it. It’s something we don’t see on the immediate horizon.” The main advantage to going public is getting a large amount of funds that can be used to fuel growth. But that comes with more owners to answer to and a lot more regulations and accounting rules to follow.
Of course, as in any other investment, I would be a buyer of Facebook shares depending on its valuation, but given all of the hype, I would be very reluctant to go short on Facebook, even with a high valuation, at least for the initial few months.