Facebook files for an IPO- Was it the right move?

Last week, Facebook filed for an initial public offering. The social giant is seeking to raise $5 billion in initial funding from investors. If successful, the IPO will value Facebook between $75 and $100 billion. The filed IPO is among the largest in technology history. This event will create yet another milestone for Facebook.

With well over 800 million users, Facebook is clearly the leader within the world of Social Media. As stated by Mark Zuckerberg, he “Founded Facebook on the idea that people want to share and connect with other people in their lives…” Although Facebook was only created in 2004, it has evolved; not only in the sheer number of users and advancements in website design, but also in revenues.

At the start, Facebook was grossing just over $52 million; however only 6 years later their revenues have increased to over $4 billion. Although Facebook’s revenues have steadily grown, the issue of having only one revenue stream remains.

Many people are wondering why Facebook needs to raise extra money; after all, the projected revenues for 2012 are far beyond their $5 billion investment benchmark.


In my opinion, Facebook is seeking an investment for five main reasons:

1. An increase in capital will allow for greater product investment.

2. More products and better services will help create and grow revenue.

3. The capital injection will increase Facebook’s purchasing power.

4. Employees will have a vested interest - many will become shareholders.

5. The capital will allow Facebook to further expand their services.

So what’s next?

Although these reasons are solely based on my own knowledge, I truly believe that they are in line with Facebook’s goals. In fact, yesterday Mark Zuckerberg announced that Facebook would be further monetizing its mobile platform through advertising. With nearly half of all Facebook users utilizing the mobile platform, it makes sense that advertisers would want to tap into the market.

Although the entire IPO process seems simple, in reality it’s extremely complex and risky. Facebook’s greatest concern is repeating the IPO disappointment of Groupon and Zynga where valuations fell below IPO share prices.

It will be interesting to see where the IPO will take Facebook. Will the site remain the same, or will it be transformed into an advertising cluttered powerhouse? Only time can tell.

The Wall Street Journal points out some interesting considerations on the Facebook IPO - check it out! 

Facebook's $5 Billion IPO Filing

-Tim