One thing about Facebook is that Facebook doesn’t need the money that Facebook is raising in the Facebook IPO that Facebook just filed. (Did you hear?) It’s got almost $4bn in the bank and it can’t even be bothered to pretend that it’s got any plans for what to do with more:
The principal purposes of our initial public offering are to create a public market for our Class A common stock and thereby enable future access to the public equity markets by us and our employees, obtain additional capital, and facilitate an orderly distribution of shares for the selling stockholders. We intend to use the net proceeds to us from our initial public offering for working capital and other general corporate purposes; however, we do not currently have any specific uses of the net proceeds planned.
And while the selling shareholders undoubtedly will be happy to be able to sell in the open market, they can kind of do that now, with robust SharesPost and SecondMarket trading at high-eleven-figure valuations. Basically Facebook is IPOing because it’s got so many shareholders that it is legally required to register so might as well raise a few yards of rainy-day money while it’s at it.
When that’s your posture – and, to be fair, when people are beating down your door to buy your stock – you can be pretty, pretty cavalier with shareholder rights. What that means here is a two-class share structure (insiders get 10 votes per share, the public gets 1 vote), a board of directors that is not required to be independent, and Mark Zuckerberg controlling 57% of the voting power of the shares (while only owning 28%) via really quite all-encompassing voting agreements with current investors, some of which last until he dies. If your theory of public corporations is “they should be controlled by and for the benefit of the public shareholders,” this may trouble you. If your theory is “I’d follow Mark Zuckerberg anywhere,” then, carry on.
Other things to know or avoid knowing:
- Morgan Stanley is lead left, JPMorgan is #2, Goldman a miserable #3, and BAML, BarCap and Allen & Co. also named in this filing. (Expect more to come.) As a capital markets geek I was impressed that Morgan Stanley is sole “representative” of the underwriters, which means that they have the right to waive the lock-up agreements that limit sales by Zuckerberg and other inside/selling shareholders for 3 to 18 months. It is good to be a “representative” because if the stock runs and the selling shareholders want to sell more, they have to get your permission – which means you are pretty much guaranteed a bookrunning slot in the next deal. Banks push hard to be representatives and cutting out JPM and GS shows Zuck’s desire to keep outside interference to a minimum.
- As a consolation prize, Goldman has about 66 million shares that it apparently bought at a $50bn valuation. At $75bn that gives GS a profit of around $190mm on shares owned by GS Group and almost $700mm on shares owned by its funds (on which it gets 5% of profits, so another 35 bucks). Better than the IPO fees I guess.
- There are 845mm monthly active users and “100 billion friendships.” Dealbreaker’s crack team of analysts calculated an average of 118 friendships per active user. But then I was all – wait, what is a friendship? Like, if I am friends with you, is that one friendship (per natural use of the term), or two (because it increases each of our “friend” counts by 1)? If the former, then the average Facebook user has 236 friends; if the latter, 118 (right?). This is a very important valuation metric for me.
- Speaking of valuation metrics, pre-money diluted EPS is like $0.43, which at $40/share (around $75bn pre-money) is close to a 100 P/E, which is probably too low or something. (Is P/E a thing?)
- Financials include $3.7bn in revenues and $1bn (exactly!) in net income; growth rate for users, top line and margins are all slowing from super-fast to just regular fast so second derivatives whatever. Also 12% of revs are from Zynga, so keep buying those shiny tractors.
- But what about the dark side? Specifically, that “Facebook undoubtedly costs employers billions of dollars a year in lost time.” Billions!
- Zuckerberg will be mind-manglingly rich, but you knew that. Something like $28bn / #9 in the world. But “In the first quarter of 2012, our compensation committee discussed and approved a request by our CEO to reduce his base salary to $1 per year, effective January 1, 2013,” so that’s nice.
In conclusion, Facebook.
Facebook Files for IPO [WSJ]