Let’s hold off that Facebook IPO valuation talk
Pay attention to news that Facebook is planning its IPO. But take its proposed valuation with a grain of salt.
Facebook is widely expected to go public in 2012, and today CNBC’s Kate Kelly put some meat on the rumor bones.
She reports that the social network plans to file its S-1 by this October or November, with the actual offering to occur in Q1 2012. This is in keeping with the 500-shareholder rule theory, in which Facebook would be be forced to publicly disclose its financials by next May, so it might as well become publicly-traded. Even if the SEC lengthens that threshold — which it is considering — Facebook still could face IPO pressure from employees who have been prevented from selling their shares on private secondary markets (following a rash of such sales, Facebook began providing private stock grants rather than options).
[Update: The 500-shareholder rule may be killed off by Congress]
Kelly adds that Goldman Sachs (GS) is considered to have “pole position” for underwriting rights, due to its managing of a $1.5 billion secondary sale last year, and that Facebook is unlikely to use a Dutch Auction model.
Last and least, Kelly reports that Facebook would be looking for an initial market cap in “north of $100 billion.” This is the tidbit that most other blogs are breathlessly repeating, but I cannot understand why.
First, the most recent private trades of Facebook stock came in at around $85 billion, and private trades are meant to be done at a discount to public valuations. LinkedIn (LNKD) shares, for example, traded at $23 per share on the private markets six months before going public at $45 per share. At that velocity, Facebook actually would be valued at $165 billion next January.
More importantly, it’s impossible to intelligently speculate on an Internet company valuation 6-10 months out. Will the bubble still be inflating? Will it have popped? Will macro trends have continued their anemic recovery, or double-dipped back down?
Facebook is probably immune to the timing issues related to IPO windows, but it does not stand apart from the economy at large. If we experience a massive advertising pullback, for example, then Facebook could take a hit in its largest revenue pot (or at least a growth slowdown). Not saying that will happen, but obviously it could. To me, the only value in today’s “$100 billion” report is in referring back to it when the company has an actual public valuation.