This is a guest post by Mark Trova. Read more about him at the bottom of the page, and make sure to follow him for great reporting on business and politics.
Facebook is the largest social network in history. With 800 million users and counting, Facebook claims over 1 in 8 of the world’s population as a user. In the past few days, news has stirred about Facebook going public. My first thought was, as a user, am I going to have to start paying for it?
The answer is no, as marketing created an astonishing $1.5 billion in profit in 2011, for the last three years growing at 127%. So in other words, Facebook is doing just fine without the PR nightmare that would ensue by charging users to use it. So, should we even care about this?
From a business perspective, this sale is massive. The 800 million users on Facebook are estimated to be worth $100 million, which, for some perspective, is the approximate value of McDonald’s corp. The deal would raise around $10 billion for the buyer, or in other words, the biggest IPO offer of a U.S. Internet company in history. The previous high was Google, which raised $1.9 billion after a valuation of $23 billion in 2003. This sale would make Facebook the fourth highest IPO in America, behind Visa, General Motors and AT&T Wireless, and would make Facebook worth more than 62 countries worldwide.
However, Facebook going public is not as huge of a deal as it might sound at first. For example, when Netscape got its IPO in 1995, it caused a mass amount of corporate spending because Netscape changed the entire landscape of the internet. Web consultants, to makers of web infrastructure invested and innovated from there. Facebook represents only about 1% of the total ad revenue on the web today, and that means corporate spending will not be altered very much.
People who are interested in Facebook stock have some glimmer of hope for it going up. P/E ratio, or price earnings ratio, is a ratio of price per share to total profit. Google’s P/E ratio was 84 in 2004, and Facebook’s in projected to be 80 when they get their IPO. Google’s price of $84 has risen to $580 today!
Potential bad news, but news that I find to be potentially misleading, is that of the 19 social media IPO’s, 82% of them are currently trading at or below their opening day prices. That being said, Facebook is not a normal social media outlet. It’s the main one, an absolute juggernaut that has absorbed users at a rate that is unprecedented. They are predicted to eventually exceed one billion members!
So, now that we see how the business of Facebook will be affected, the question remains: should users care?
I don’t think so. Like I said, users will not have to pay the way some have feared, and predicted, for a long time. In terms of creativity, its tough to predict how they will be changed. My guess however, is that with more public input, creativity and innovation will be quicker. Also, with a public interest in mind, users will have more of a say when it comes to changes made in the profile. My friends seem to take a personal offense to each and every change that is made.
I am a huge supporter of this sale. All in all, public ownership is good for the economy in my opinion. Whether it be Facebook, land or business, ownership by public individuals breeds growth and success. Facebook will continue to flourish, grow and dominate the social media world.