IPOverload: Facebook goes public

February 1, 2012

The least suspenseful waiting game in Silicon Valley is now over, thank heavens. Facebook, which began as a decidedly private Harvard hangout, has begun the process of going absolutely, totally, unabashedly public.

Facebook filed for an initial public offering with the SEC Wednesday, which means we have the first raw glimpse of its financials. Advertising makes up 85 percent of its $3.7 billion in annual revenue. And it took in $1 billion of income in 2011. For more of the best data points, see my colleague Anthony De Rosa’s rundown.

Facebook is synonymous with the Internet in many ways: It boasts more than 10 percent of the world’s population as active users and has realizable ambitions to be the preeminent vetting service on the Net, making a “Like” as powerful and capricious as Caesar’s opposable thumb.

Even if you aren’t a Facebook user (I am not anymore), its impact is inescapable. The world’s largest social network has, for better or worse, made TMI a laughably quaint notion, redefined friendship, and become, if not a verb (like Google), perhaps the most recognizable proper noun of the digital age.

All of which should mean, of course, that Facebook is the investment of a lifetime. And maybe it is — well, it certainly is for the insiders and early private investors who’ll be cashing in some of their chips, and for those lucky employees among the 3,000 who will be getting some new chips in the big game.

But for the rest of us, the story may not be quite the same. Popular brands often don’t quite line up with expectations. The dot-com bubble taught us that. Facebook’s IPO suggests that the backhanded Wall Street compliment, “priced for perfection,” was coined for this very company at this very time.

How high a price is too high? Netscape, the first superstar Internet IPO, seemed reasonable at the pre-launch range of about $35. Its first-day pop was double that. NSCP languished for a while, went to triple digits and then disappeared into AOL. Google’s crowdsourced IPO price in the $80’s seemed too dear for some sharp observers. Yet while it is way off its historical highs, it is hardly on life support.

None of which tells us what kind of trajectory Facebook will have. We are a ways off from the first hours of trading Facebook stock, which is driven more by hysteria and must-execute fund purchases. And we’re probably years from being able to say with any certainty whether this valuation was fair.

I’ve been a pretty cantankerous contrarian about Facebook, if I’m putting all my cards on the table. Some 400 million members ago I said there was a bubble a comin’. Wrong. It’s fairly clear in the pieces I’ve written about Facebook’s IPO prospects that I’m a valuation skeptic.

Yes, it’s true that the barrier to entry in this business (Google Plus notwithstanding) is pretty steep. I thought Groupon’s sky-high IPO was a head-scratcher precisely because it is hard to imagine that as good as the daily deals business is, it can be as good as that for any single company.

But with that said, it’s pretty safe to bet against the house on this one, simply because we have never seen an implied value like this, set by the collective sentiment of the presumably savvy, wealthy traders who are allowed to invest in private companies on such markets as Sharespost and SecondMarket. To say nothing of the fact that Facebook’s illiquid, pre-launch shares have steadily and rapidly increased in the past year or so.

Facebook is in a league of its own. It isn’t merely the latest dominant social network, and so it’s not just the next to be knocked off by the newest kid on the block (even though past has always been prologue in this [my]space). Its tentacles are everywhere. Branders and business support it by supplementing their own Web presences with Facebook.com/yourbusinessnamehere. Politicians, publishers, small businesses, students, grandmothers — they all think they have to be there. That’s power, and it snowballs.

And yet …

It’s all about the valuation, and to a lesser extent your investment window (once your investment depreciates, the only decision is about when to book that capital loss). Nobody can dispute that Facebook, which is said to have made about $4 billion last year, is worth a lot of money. But as Sen. Everett Dirksen probably didn’t ever say: “A billion here, a billion there, and pretty soon you’re talking real money.” $80 billion is a lot of money. So is $50 billion. But the difference is night and day.

As a journalist, I can’t invest in individual stocks, though the boring index and retirement mutual funds I own will almost certainly make me a Facebook investor. But if I could buy, I’m sure I wouldn’t. Not for the same reason I recently deleted my Facebook account. But for the simple reason that, like the belief there are do-overs when you reconnect with your high school buds, some things really are too good to be true.

Photo: Screengrab of Mark Zuckerberg (L) and actor Jesse Eisenberg on Saturday Night Live, January 29, 2011

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