Not much in Facebook IPO for little guys
LATER this year, social networking site Facebook will launch a massive internet IPO. The flotation is expected to value Facebook, founded just eight years ago, at up to $100bn (€76bn).
But with founder Mark Zuckerberg retaining an iron grip on the company, investors should be wary. Remember Bebo or Myspace? The social networking landscape is littered with the corpses of the next big thing.
Why should Facebook turn out to be any different?
Investors are being asked to shell out up to $1bn in a Facebook IPO. This for a company which had sales of $3.7bn and after-tax profits of $1bn last year.
Facebook's sales and profits have risen rapidly in recent years, with sales having quintupled and its after-tax profits more than quadrupling since 2009. Facebook now boasts 845 million regular users, one human being out of every eight on the planet.
So should investors pony up for Facebook? Retail investors will be excluded from the IPO so they will have to buy shares in the after-market, meaning that they will end up paying even more over the odds.
Somehow I can't help feeling that Facebook is massively over-valued. A $100bn IPO would value the company at 27 times historic sales and 100 times after-tax profits. That's discounting a heck of a lot of future growth.
Which of course is the $64bn question. Facebook can't maintain its recent breakneck pace of growth. Even if it manages to crack China (Facebook currently doesn't operate in the globe's most populous country), the number of potential users remains finite. With various venture capitalists and investors -- including Bono -- having already had their pound of flesh, there's little left in Facebook for the little guy.
