• 01 Feb 2012 at 6:45 PM
  • FaceBook

Facebook Facebook Facebook Facebook


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.

– Could be NYSE, could be NASDAQ, none can say, but the ticker will be the obvious FB rather than the far superior LIKE.

– The Winklevii are gonna be centimillionaires. Larry Summers dislikes.

In conclusion, Facebook.

Facebook [SEC]

Facebook Files for IPO [WSJ]

80 comments (hidden to protect delicate sensibilities)
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Comments (80)

  1. Posted by Groupon | February 1, 2012 at 6:53 PM

    I bet going public even though you don't need the money is the NKI.

  2. Posted by Chandragupta | February 1, 2012 at 6:53 PM

    This reads like a typical BB research note, well done Matt ! CFA paying the fuck off

  3. Posted by Guest | February 1, 2012 at 7:00 PM

    "fuck off" being the operative phrase here

  4. Posted by login | February 1, 2012 at 7:01 PM

    allright waiting for one of the lights out moon ascending etc etc guys on this one..

  5. Posted by J Gorman | February 1, 2012 at 7:12 PM


    The Best Ships are Friendships

  6. Posted by Guest | February 1, 2012 at 7:30 PM

    Paraphrasing the first 3 lines of Zuckerberg's letter: Facebook was never supposed to be a company. We have a purely social agenda. Investors need to understand that.

    Check. Put me down for 10,000 shares.

  7. Posted by mark sugarman | February 1, 2012 at 7:37 PM


  8. Posted by ThatsVVacc | February 1, 2012 at 7:54 PM

    Matt Levine
    Matt Levine
    Matt Levine
    Matt Levine

  9. Posted by unreal | February 1, 2012 at 7:59 PM

    I guess this is truly the end…….America's most amazing company. Literally produces billions from nothing. Not a maker of things, doer of things, even bankers can create great and useful things. But this? If this does not call the absolute top of the market in America, I dont know what would. Seriously, its time to short the entire country/market/everything. is there a nice mutual fund for that?

  10. Posted by Guest | February 1, 2012 at 8:03 PM

    Yeah, its called "Vote Obama 2012", 0% fees, infinite downside

  11. Posted by Guestest | February 1, 2012 at 8:05 PM

    100 Billion is the new million…
    – Dr. Evil

  12. Posted by Ken Lewis | February 1, 2012 at 8:13 PM

    Wow…..Bank of America really does suck

  13. Posted by McKinsey | February 1, 2012 at 8:43 PM

    Our Social Media Tycoon benchmarks would suggest Facebook is 25% overstaffed, and should call us immediately to assist in the right-sizing.

  14. Posted by Guest | February 1, 2012 at 8:46 PM

    1: FB goes public at ridiculous valuation
    2: Short FB
    3: Start Occupy Facebook
    4: ?
    5: Success

  15. Posted by Mitch | February 1, 2012 at 10:13 PM

    Malkovich Malkovich Malkovich

  16. Posted by HandiCapital | February 1, 2012 at 10:44 PM

    Hey Matt, nice headline… But you only need to say "Facebook" three times to summon Zuckerberg out of FarmVille to lounge around your house wearing Adidas sandals and make supportive statements like "Don't worry Matt, your readers are dumb fucks".

    Oh, and the article wasn't half bad either.

  17. Posted by RestrictedCash | February 1, 2012 at 10:58 PM

    Yes, no, no, yes, yes, yes, nooooooo. Somebody poke me or check-in!

  18. Posted by Fuckerberg | February 2, 2012 at 1:19 AM

    My posts get around 45,000 likes, that's all the love i need.

  19. Posted by MIT | February 2, 2012 at 7:14 AM


  20. Posted by Mitt | February 2, 2012 at 7:22 AM

    I was born on third base and think I hit a triple. I am the WHITE GUY that will put Obama back where he belongs in the south side of Chicago, you know, with the rest of them. Now one of you poor bastards fetch me a Niçoise salad. Pronto.

  21. Posted by gselevator | February 2, 2012 at 7:24 AM

    Let's get one thing straight. Mark Zuckerberg is a fucking loser.

  22. Posted by - 2.5 | February 2, 2012 at 7:26 AM

    Do you know how to post videos to facebook ??

  23. Posted by Mitt | February 2, 2012 at 7:31 AM

    We at Bain are willing to take a haircut on our normal fee to help Facebook prosper during this time of economic uncertainty. And, Karl Rove says the American people would love to hear how I helped create 800 million jobs.

  24. Posted by stupefied | February 2, 2012 at 8:01 AM

    you read the article ?

  25. Posted by Sleeper | February 2, 2012 at 8:59 AM

    The North Face says 'cool, calm and collected.' The facial expression says 'I just soiled my drawers from the brunette rubbing up against my leg.'

  26. Posted by Kim's Checklist | February 2, 2012 at 9:35 AM

    Ray J – check
    Reggie – check
    Kris – check
    Tebow – rejected!
    Zuck –

  27. Posted by Guest | February 2, 2012 at 9:40 AM

    Has anyone done due diligence on the brunette in the middle?

  28. Posted by VonSloneker | February 2, 2012 at 9:51 AM

    “100 billion friendships" mentioned in the same breath as income statement metrics. I just flashed back to an embarassing research note I wrote in the 90s. Stop Zuck before it's too late…

    – Eyeballs, Pageview & CPM

  29. Posted by guest | February 2, 2012 at 10:04 AM

    Still want proof of CFA results MATTY BOY!!!

  30. Posted by Sloan | February 2, 2012 at 10:09 AM

    Nice babe to the left of Zuck

  31. Posted by guest | February 2, 2012 at 10:24 AM

    Some average rando at SXSW that looks amazing because she's standing next to two dogs and a nerd? Further, lack of smile could mean fucked up teeth.

  32. Posted by Guest | February 2, 2012 at 11:04 AM

    "Fuck you, I'm from Palo Alto. I can buy your family, piss off."
    – Luke

  33. Posted by Thurston | February 2, 2012 at 11:07 AM

    You're color blind. She is blond.

  34. Posted by Leo | February 2, 2012 at 11:12 AM

    This comment demonstrates how little you understand the impact of a business that generates close to $4 billions in revenues and $1 billion in net profit. It means a lot of jobs both primary, secondary and tertiary and many companies as a result produce real products. You forget that Facebook generates a lot of advertising selling products. If the sell someone has to make them. It helps a lot of companies hire people and make profits, as well as pay taxes.

  35. Posted by Leo | February 2, 2012 at 11:14 AM

    This is quite stupid comment. And it is not funny at all.

  36. Posted by Guest | February 2, 2012 at 11:27 AM

    +1 for aggravated use of CFA

  37. Posted by PermaGuestII | February 2, 2012 at 12:14 PM

    Nor are you.

  38. Posted by PermaGuestII | February 2, 2012 at 12:34 PM

    This comment demonstrates how little you understand about this website and the people commenting hereon.

  39. Posted by Motives Examiner | February 2, 2012 at 12:59 PM

    Not liking what I'm seeing here.

  40. Posted by Beleaguered Tables | February 2, 2012 at 2:48 PM

    But in the ultimate "fuck you" to MS, Goldman received the highly-coveted Lead Left position in Matt's tags

  41. Posted by Mehmet | February 2, 2012 at 3:10 PM

    I invested all my monies in Facebook when Ismail YK made a music video dedicated to Facebook that involved ninjas, a tidal wave, and a last minute escape of a flooding NYC on a helicopter. Facebook Facebook.[youtube 0V9YsjSJmZY http://www.youtube.com/watch?v=0V9YsjSJmZY youtube]

  42. Posted by Kevin Waspi | February 4, 2012 at 12:36 PM

    Remember, Mark is not a "material" type of guy, so that's why he has no problem with 57% voting authority with 28% ownership!

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