When Facebook CEO Mark Zuckerberg announced earlier this month that the company was finally ready to have its much-awaited Initial Public Offering, the move was immediately hailed as the largest IPO in American history. The value of the company has been bandied about at around $100 billion, although it is selling only enough stock to raise somewhere between $5 billion and $10 billion. A sale of 200,000 privately held shares, conducted by the private-stock firm SharesPost earlier this week, would put the current value of the company at $98 billion.
Most of the discussion around Facebook’s enormous influence has focused on the number of users it claims to have (845 million), but filings for the IPO revealed that its financial health is commensurate with those staggering numbers. In 2011, Facebook earned $3.71 billion in revenues, of which $1 billion was pure profit. And those revenues were up 88 percent from the year earlier.
All of this promises to inject some excitement – not to mention some dollars – into an IPO market that has been fairly moribund lately. In 2011, the average IPO jumped 30 percent on opening day, only to end up falling back below its opening price, according to information compiled by Atelier Advisors. Atelier points out that six of the most highly anticipated IPOs of last year – Demand Media, Pandora, LinkedIn, Groupon, Zynga and Angie’s List – all closed the year below their IPO prices. All told, the FTSE Renaissance U.S. IPO Index, which tracks stocks from the date of their IPO to two years forward, lost 21.4 percent in 2011.
LinkedIn would seem to provide a template for Facebook, as the business models are very similar. LinkedIn is to business relationships what Facebook is to personal relationships. It went public last May, and closed on its first trading day at a split-adjusted price of $94. But it hasn’t traded at that price point since August of last year, although recent closes have brought it almost all the way back.
According to Renaissance Capital, there have been 16 IPOs priced so far in 2012, down about 30 percent from the same time last year. This year’s crop has raised about $1.5 billion, compared with $8 billion by this time in 2011. A majority of companies planning IPOs recently have been forced to reduce the price for their stock, sold fewer shares than expected, or both.
On the other hand, the results for those who have made it into the stock markets have been strong. The FTSE Renaissance U.S. IPO Index is up 14.3 percent for the year, significantly outperforming both the S&P 500 (up 7.5 percent) and the Russell 3000 (up 8.5 percent). That suggests that some sort of winnowing-out process is at work, pushing the weaker IPOs to the side but leaving only the best companies to make it to market.