It's hard to imagine an initial public offering (IPO) as heralded as Facebook's. Even Microsoft's 1986 debut (at $21) didn't garner this much attention. It's rare when a product or service that's so ubiquitous and so central to people's day-to-day lives, becomes available for the public to purchase a position in. Imagine if our Cro-Magnon ancestors had found a way to securitize fire or the wheel.
How Much?
Liberal estimates set Facebook's upcoming book value in the exospheric 12-digit range. One fun side effect to a well-publicized IPO is that it gives prognosticators who have no skin in the game of chance to make unrealistic estimates about the company's market value. $100 billion? Sure, why not? Sounds more memorable than $7 billion or $11.9 billion. Neither of which would make a memorable headline, be easily rattled off by journalists or make a good follow-up story a few months later, when Facebook's book value peaks without ever approaching $100 billion.
Prices are opinions, we know that, and they often have little correlation to value. No less an authority than Adam Smith himself pointed this out, observing that diamonds are expensive yet have little intrinsic value, while water is vital and essentially free. So what of Facebook, which is little more than a glorified contact list interspersed with baby pictures and Zynga games?
Followers
There are 845 million people that spend time on Facebook, or at the very least, have accounts. So, does that mean each one is worth around $118, and if so, to whom? Or is this a case of unnecessarily dividing one number by another? Even if the average Facebook user posts every conceivable detail about their life, could an ambitious marketer or advertiser get $118 of added value out of that? These aren't rhetorical questions, these are questions a conscientious investor needs to ask before going long with an overpublicized company, whose business model is easily replicable; and if you don't think Facebook can be replicated, ask the good folks at MySpace or Friendster.
Facebook's revenue stream is based solely on advertising; facebook doesn't sell anything directly. It's a lucrative advertising vehicle, to be sure, with over $3 billion in advertising revenue last year.
By far the biggest American IPO in history was that of VISA in 2008. Not that longevity is a necessary condition for success in the marketplace, but VISA was a decades-old concern with millions of paying subscribers, both on the cardholder and merchant sides, before going public. VISA's IPO was valued at $17.9 billion and four years later the company's book value sits at about a healthy $78 billion.
The next largest IPO in history (among those companies that still exist in the same form, thus excluding AT&T Wireless and General Motors) was that of Kraft Foods in 2001 at $8.7 billion. Again, a company that produces a tangible asset and with significant barriers to entry. Facebook has announced that it hopes to raise approximately $10 billion when it first trades publicly, a bold statement that any investor should take under advisement.
Posts
This represents 99% of Facebook posts, from our unscientific observations:
"Here's a pic of my daughter in her princess Halloween costume!!!!!!"
And this represents 100% of the resulting social interaction (rounding to the nearest integer):
"OMG so cute!!!!!"
"Lindsey yor daughter is SOOOOOOO cute!!!!"
"SO cute lol"
"I made my daughter a similar costume last year! So cute!"
Meanwhile, one of America's most profitable companies, ExxonMobil, got that way by refining and distributing a product that most people can't live without.
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