Small-Cap Investor Forum

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Facebook Prepares to Go Public: IPO Valued at $75 Billion-$100 Billion

The reigning king of social networking will soon greet the public equity markets. Facebook is preparing to file documents in preparation for an IPO, and, according to reports, the social networking giant will file a prospectus with the SEC sometime today.

Facebook’s IPO is projected to be one of the biggest in history, valuing the company at a projected $75 billion to $100 billion dollars. The company’s stock has been trading in the private markets at a valuation of about $80 billion.

In view of Facebook’s enormous public presence, some are anticipating a considerable IPO spike when Facebook’s shares begin trading, with a great deal of hype surrounding the deal as the pricing date approaches. The IPO is expected to happen sometime this spring. Eager investors are being admonished to consider the performance of other recent IPOs, however, before jumping on the Facebook bandwagon too quickly.

Groupon and Zynga’s recent IPOs had inexperienced investors diving in headfirst as soon as the stocks began trading, only to watch the stocks plummet shortly thereafter. Something similar could happen with Facebook, depending on where the stock is priced, so savvy investors will be hanging back. Unless Facebook has some big, new product up its virtual sleeves, the stock isn’t likely to trade for very long at a sky-high valuation relative to the company’s present financials.

The latest numbers show that Facebook’s 2011 earnings were just shy of $4 billion, with a $1.5 billion operating profit. A valuation of $75 billion to $100 billion is expensive but not unreasonable – providing the company is on track to grow to around $6 billion in revenue and $2.5 billion in operating income this year. Facebook’s valuation could fall at the low end of that range or lower, however, if the company’s growth is sharply declining or some troubling details surface.

After this week, the public will know just what Facebook is made of financially. The company’s prospectus should lay out Facebook’s financials and business in great detail, indicating whether or not this social networking icon could be the next Apple.