USA/FILE: Ahead of Facebook's mega IPO that is expected to raise over $12 billion (USD), experts discuss the company's strengths and weaknesses and its impact on social media

Record ID: 834811

  • Title: USA/FILE: Ahead of Facebook's mega IPO that is expected to raise over $12 billion (USD), experts discuss the company's strengths and weaknesses and its impact on social media
  • Date: 16th May 2012
  • Summary: NEW YORK CITY, NEW YORK, UNITED STATES (RECENT) (REUTERS) (SOUNDBITE) (English) MAX WOLFF, SENIOR ANALYST, GREENCREST CAPITAL MANAGEMENT, SAYING: "We don't believe that the growth period for the company is in any way over. We do believe that there is a law of large numbers, that no matter how excited you are about Facebook, the law of large numbers holds, the bigger you
  • Embargoed: 31st May 2012 13:00
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  • Location: Usa
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  • Country: USA
  • Topics: Business,Communications,Industry
  • Reuters ID: LVA2UL3KLAZJQBBGXK8EPM9SL8XL
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  • Story Text: Facebook, the company founded in a Harvard dorm room by Mark Zuckerberg in 2004 is expected to raise more than $12 billion (USD) in initial public offering (IPO) on Friday (May 18).
    The company has increased the price range of its shares in Silicon Valley's biggest-ever IPO, from $28 to $35 to between $34 and $38 per share in response to strong demand on Tuesday (May 15).
    That would value Facebook at roughly $93 billion to $104 billion, rivaling the market capitalization of Internet powerhouses like Amazon.com Inc and exceeding that of Hewlett-Packard Co and Dell Inc combined.
    At the mid-point of $36, Facebook would raise $12.1 billion, eclipsing Google Inc's $2 billion IPO debut in 2004.
    "It's a very aggressive valuation, it means priced for perfection and the company needs to meet or exceed an incredibly high series of expectations even to maintain itself in the 85 plus billion dollar valuation," said Max Wolff, Senior Analyst at Greencrest Capital Management.
    He cautioned that on a quarter over quarter basis the company's growth has slowed in recent years, but on a year to year basis it's still growing at a rapid speed.
    "We don't believe that the growth period for the company is in any way over. We do believe that there is a law of large numbers, that no matter how excited you are about Facebook, the law of large numbers holds, the bigger you are, the harder it is to grow," Wolff said.
    "That being said, we still think that the company is a growth story clearly the market does too, the very aggressive multiples, the sheer amount of excitement and fury on the subject suggests there is near consensus that there is growth, the questions remains if there is enough growth to justify the high-end of a very aggressive discussed range of possible values."
    Wolff said that Facebook needs to rethink the ways it's generating revenue to continue to grow at the same rapid pace as it has done so far.
    Right now he said, its biggest cash cow is game developer Zynga, that allows users to play interactive games within Facebook's platforms.
    He said that Facebook needs to explore revenue streams similar to Zynga.
    "The vast majority of what they make in revenue comes from people buying virtual goods inside Zynga games. That's also why Zynga is 15 percent of their revenue and probably more than 20 percent of their profit, or approaching 20 percent of their profit. And they need to do that in a whole lot of other areas," Wolff explained.
    But Zuckerberg's peers have a different opinion.
    Speaking at "Internet Week New York," a festival celebrating the city's internet industry, Jonah Perelli, Founder and CEO of Buzzfeed.com and Co-founder of the Huffington Post said that it's hard to put a price tag on a company that only a few can fully understand.
    "When you're looking after the IPO, you look at these traditional business metrics you look at the spreadsheet and you say, okay, what is this company worth? If you judge it that (Facebook) way, you might have a more negative view, even though it's still a great company," Perelli told Reuters.
    "But it's a phenomenal company when you look at the level of engagement and there is nothing to compare it to, nothing has ever had that level of engagement before. And so I think that they have a very bright future and that people haven't fully understood the impact they're going to have on the internet and on business and on media."
    On the revenue front, Perelli said that social media will redefine the nature of advertising and advertisers. Instead of being one-way, in the future internet users will share advertisements through social media such as Facebook, he said.
    "For me, the big vision is that content is becoming social, that advertising is becoming social, and we need to rethink the way we create media and the way we create advertising for a social world," Perelli said.
    "And if we do that you're going to start to see content that gets shared and passed along and advertising that gets shared and passed along where you're only the initial exposure is the jumping off point, and all the value gets created when people start sharing with each other."
    Some companies are already exploring new ways to use social media such as Postano.com, which aggregates social media content on a specific topic or brand from various sources such as Facebook and Twitter and displays it in one place on their website. It allows its "dashboard" to be a powerful tool for brands that want to follow the social media buzz around their products.
    Postano's sales director Don Bell said that any social media company nowadays owes Facebook.
    "I think Facebook is the social media environment to a degree. So it's whatever they do everyone else follows their lead to a degree. So we run in the wake of Facebook to a degree because that's where all the eyeballs are," he said.
    Facebook plans to sell 337.4 million shares, or 12.3 percent of the company.
    The social network is scheduled to price its shares on Thursday (May 17) and begin trading on the Nasdaq on Friday (May 18).
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