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Privately public

1 February 2012 By Robert Cyran, Rob Cox

Facebook’s $5 billion-plus initial public offering won’t bring a major status update. Listing on a stock exchange typically brings lots of changes. But tick through the list, and it’s clear that the social network, which filed for its long-awaited U.S. initial public offering on Wednesday evening, is already largely there.

First, consider capital-raising. Facebook, founded in 2004 and led by Mark Zuckerberg, hasn’t had any trouble raising money. It has already collected more than $2 billion from the likes of Silicon Valley venture capitalists, Goldman Sachs and Microsoft. Anyway, it doesn’t need money to build out its business, because it has been cash flow positive since 2009. Facebook’s operations generated $1.5 billion of cash last year, while the company invested less than half that amount.

True, the IPO will make it easier for existing investors and employees to cash out – some are selling shares in the offering. But the stock has been trading actively on grey market venues such as SecondMarket for some time. And workers got liquidity from Russian investment fund DST three years ago, when it offered to buy $100 million of stock directly from employees.

Going public often has the benefit of raising a company’s profile, and shareholders can become loyal customers and vice versa. But Facebook has 845 million monthly users worldwide and already has been the subject of an Oscar-nominated film. It’s hard to see how ringing the bell on an exchange can make it any better known.

Another major adjustment can be transparency. And for sure, Facebook will have to file quarterly financial statements and everything else regulators demand, and these will be publicly available for the first time. But the company already has about 1,200 shareholders and releases financial information to them. Moreover, Zuckerberg meets with employees regularly and fields probing questions about the firm’s finances. So management already knows what it’s like to be scrutinized by investors.

It’s not even likely that executives will suddenly have to listen more carefully to outside shareholders. Only a small chunk of Facebook is up for grabs in the IPO, and Zuckerberg will retain majority voting control thanks to the 10 votes attached to each share in the special class he and other insiders will own and all the investors who have ceded voting rights to him.

Facebook’s IPO, which could value the company at $100 billion, may be one of the biggest floats in years, but that doesn’t mean it changes much. With one 27-year-old geek remaining very much in charge, it may just turn the most public of private companies into one of the more private public ones.


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