Facebook IPO: A Bad Idea?

Goldman Sachs makes a lot of money and it is one of the banks that rode the wave of recession a lot better than others.

Most will know that they along with Russian tech investor Digital Sky Technologies have made an investment into Facebook and stuck it with an evaluation of $50 billion dollars.

Given how extensive Facebook’s coverage is some people will call it a fair amount of money and juxtaposed against Google’s recent attempted takeover of Groupon and its 33 million subscribers, it might even be a steal. Facebook by its own estimation and the lot that listen to them has 500 million subscribers.

In terms of actual revenue for a company its size Facebook doesnt make much money. Last year it was estimated to have made about $800 million dollars which means that we are looking at about $1.60 per subscriber.

So in the backdrop of that you wonder what the valuation is. Where will Facebook make real money? At this point it says that the attachment of its user-behaviour advertising model is based on aggregation and not supply of specific data on an individual or group. Skeptics say that there are greater privacy issues at play than Facebook is willing to admit.

Now that then raises one very big question. What model is being used here? An flotation with a possible Initial Public Offering(IPO) of more than Goldman Sachs’s $50 billion means that this is no longer childsplay.

Privacy issues become less of a matter for off the cuff public statements but with many more shareholders to answer to the rules change. The rules for trade and the sort become different. The pressure to increase earnings will put Facebook in a position where it might find itself at odds with its user base. It essentially will become a politician seeking re-election and therefore engages lobbyists.

Some will argue that Google has survived this but in all fairness the search engine giant has a more sound model than Facebook. Also add to that, the number of products that it has in its diverse portfolio.

In reality Facebook is probably as close to a public company so it will be formalising the whole thing. But a flotation brings it into a different territory and will in  a way induces a different form of business.

Of course, Facebook CEO Mark Zuckerberg on the 6th of December on 60 Minutes gave the possibility of an IPO a maybe but we think that he was testing the waters. Of course the fact that Goldman Sachs has thrown so much money of them will make resisting the flotation much harder. In fact the smaller shareholders will want in on public funds.

Zuckerberg himself will want to hold them off for as long as possible but for how long? Like many analysts we think he has about 15-18 months.