Facebook took a formal step toward joining the ranks of other public technology giants after filing for its eagerly anticipated initial public offering.
The company filed an S-1 form with the Securities and Exchange Commission today, officially declaring its intent to go public. Facebook plans to raise $5 billion through the IPO, according to the filing. The last major tech IPO was Google's, which raised $1.9 billion.
The S-1 pulls back the curtain on Facebook's business, providing investors with a formal glimpse into its financials. Last year, it saw revenue double to $3.7 billion, while its profit grew 65 percent to $1 billion. Over the past two years, its revenue rose nearly fivefold, while its profit more than quadrupled.
More important are the hundreds of millions of users who regularly visit the site, exchanging messages, "liking" each others' comments, and posting photos and videos. For better or worse, Facebook has a lot of data on those users, which translates to a large and engaged audience for targeted advertising.
A big audience
The company boasted 845 million monthly active users, more than doubling its year-earlier total. Each day, 483 million users log on to the site.
Facebook listed among its business opportunities offline branded advertising, online ads--including click-based and display advertising--and mobile advertising, stating its intention to go beyond the online world and go after more traditional streams of advertising revenue.
At the same time, the company acknowledges that marketing on social networks is still nascent and evolving.
"We believe that most advertisers are still learning and experimenting with the best ways to leverage reach, relevance, social context, and engagement offered by Facebook," the filing said.
Facebook also listed payments for goods as another revenue opportunity. The social network serves as a platform for developers to sell their goods--virtual and otherwise--and from which the company takes a cut. The company said Zynga, which makes games like Farmville on Facebook, represented 12 percent of its total revenue in 2011. No other customer accounted for more than 10 percent of revenue, but the company warned that it would suffer if it didn't maintain a good relationship with the social-gaming company.
The payments business still remains a small part of the total company's revenue. Advertising in 2011 accounted for 85 percent of its revenue, although that chunk had shrunk considerably from 2010.
Minding the risks
In stating the risks facing the social network, Facebook warned that the company could be hurt by the loss of advertisers if user engagement and activity declines. Also, the company doesn't have display ads in its mobile app, and could be hurt if more users check in to Facebook through their smartphones. Other risks included government actions in different countries, new products and services failing, and a slowing rate of growth over time.
Facebook also gave a shout-out to Google, Microsoft, and Twitter as its largest competitors, while also citing social networks run in other countries. The company noted that some of its competitors had significantly greater resources and better competitive positions in certain markets. Facebook noted that Google specifically could use its position in multiple markets to make access to Facebook more difficult.
In a nod to Wall Street, Facebook said that it prioritized long-term goals over short-term financial gains, and warned that financial results would fluctuate from quarter to quarter.
Even as Facebook has seen explosive growth, its marketing budget has ramped up considerably. The company's 2011 advertising budget more than tripled to $28 million from the year-earlier period. The company warned that its costs may outstrip its business and profitability down the line, particularly as it works to broaden its user base.
Joining the big leagues
Facebook's proposed valuation--which many peg at $75 billion to $100 billion--would instantly catapult the social network into the ranks of the largest companies, although it still lags far behind established top-tier behemoths Exxon Mobil, Apple, and Microsoft. The company's track record of revenue and profit growth--which few other private tech companies can claim--as well as the opportunities that come from its massive reach justify the huge value in many investors' eyes.
While Facebook listed $5 billion, The Wall Street Journal reports that the figure could be a placeholder and likely to change. The Journal recently reported that the IPO could raise as much as $10 billion.
Facebook caps off a recent run of technology companies going public, including LinkedIn, Pandora, Groupon, and Zynga, all tapping general investors last year. While the success of those companies can be debated, there is no arguing the reach and access Facebook has to its users.
But Facebook has taken an unusually long road to the public market. CEO and co-founder Mark Zuckerberg has long resisted an IPO, and at one point said he would prefer to keep the company private. Rather than go public a year ago, Facebook opted for a private offering of $1.5 billion in the highly coveted company shares--a deal that valued the company at $50 billion. Further highlighting his preference to retain control of the company, Zuckerberg rejected a $1 billion takeover offer from Yahoo in 2006.
While Zuckerberg may have been goosing demand by holding off on an IPO, the filing comes at a time when many are questioning the value of other Internet-based companies, with the stock activity of companies such as Zynga failing to meet expectations.Zuckerberg stands to be one of the winners from the IPO. He owns 28 percent of the company and is the single largest shareholder.
Wall Street has long sought the IPO of the social-networking juggernaut, with several firms vying to take the company public. The money raised from the offering would mean a hefty fee for underwriters Morgan Stanley, Goldman Sachs, Bank of America Merrill Lynch, Barclays Capital, JP Morgan, and Allen & Co.