Follow Yahoo!'s The Daily Ticker on Facebook here!
After months of breathless anticipation, Facebook is finally preparing to file documents in preparation for an IPO.
According to reports, the company will file a prospectus with the SEC this Wednesday. This document should lay out the company's financials and business in extraordinary detail and start the clock running for the IPO itself, which is expected to come this spring.
Facebook's IPO is expected to be enormous—one of the biggest in history. It will also quickly give "liquidity" to more than 1,000 paper-millionaires.
Facebook's stock has been trading at a valuation of about $80 billion in the private markets, and the IPO is expected to value the company at $75-$100 billion. Given the extraordinary consumer awareness of Facebook, some are expecting a huge IPO "pop" when the shares start trading, and there will be presumably be a colossal amount of hype around the deal in the weeks leading up to the pricing.
Those looking for a quick score, however, should take a look at the performance of other supposedly red-hot IPOs recently.
Namely, Groupon and Zynga.
Many clueless investors plunged into both stocks as soon as they began trading, only to watch them tank shortly thereafter. Depending on where Facebook's stock is priced, the same thing could happen with Facebook.
Part of the reason for the muted market response is that Facebook, Groupon, Zynga, and other recent IPOs are going public at a much more mature stage than most dotcom IPOs in the 1990s. As a result, it is easier for investors to get a good sense of the "intrinsic value" of the underlying company. Although the price of the shares is determined by supply and demand, investors are less likely to buy when it is very clear that a miracle would have to happen for the company to justify its valuation. And in the case of Zynga and Groupon, the IPOs were priced high enough that there wasn't much upside.
Once Facebook files its numbers, we will be able to get a good sense of what the company is worth. And unless there is some big, new product coming, it's unlikely that the stock will trade for long at an absurdly high valuation relative to the company's current financials.
The latest information we have is that Facebook generated about $4 billion of revenue in 2011 and $1.5 billion of operating profit. As long as the company is on track to grow to about $6 billion of revenue and $2.5 billion of operating income this year, a valuation of $75 billion - $100 billion seems reasonable (if a bit expensive). If the company's growth is decelerating sharply however, or there are some worrisome details, the valuation could easily be at the low end of that range or below.
But, in any event, it seems the waiting is finally over. This week, we should learn what kind of a business Facebook really is and whether it could be on a trajectory to be the hottest company next to Apple.
SEE ALSO: Facebook's IPO Will Create More Than 1,000 Millionaires
110 comments