When Facebook CEO Mark Zuckerberg announced earlier this month that the company was finally ready to have its much-awaited Initial Public Offering, the move was immediately hailed as the largest IPO in American history. The value of the company has been bandied about at around $100 billion, although it is selling only enough stock to raise somewhere between $5 billion and $10 billion. A sale of 200,000 privately held shares, conducted by the private-stock firm SharesPost earlier this week, would put the current value of the company at $98 billion.
Most of the discussion around Facebook’s enormous influence has focused on the number of users it claims to have (845 million), but filings for the IPO revealed that its financial health is commensurate with those staggering numbers. In 2011, Facebook earned $3.71 billion in revenues, of which $1 billion was pure profit. And those revenues were up 88 percent from the year earlier.
Facebook will obviously be one of those strong companies when it has its IPO, now expected to happen sometime in the late spring. With all the hype surrounding it, many are acting as if they expect a return to the go-go Nineties, when IPOs for companies like TheGlobe.com and Pets.com briefly made millionaires out of their owners, despite the fact that those businesses had nearly nothing in the way of revenue aside from hopes and promises.
But it’s worth noting that even back then, an IPO was never a guaranteed path to success. Between 1980 and 2009, the average IPO saw an 18 percent jump on its first day — but gained only 21 percent over the following three years. That's not even enough to beat the overall average market return.