Facebook to File for $10-Bln IPO: Is $100-Bln Valuation for the Company Appropriate?

Facebook Inc., the world's largest social networking site, is getting closer to its initial public offering this week as the company is reportedly planning to file papers with the U.S. financial watchdog on Wednesday.

Speculation is rife that the social media giant is aiming to raise about $10 billion, which would value the company at between $75 billion and $100 billion.

Various reports suggest that Morgan Stanley will be the lead underwriter for the IPO, which will be one of the biggest share sales seen on Wall Street, although Goldman Sachs is also expected to be heavily involved.

The looming IPO from the social networking giant, which now claims more than 800 million active users, is one of the most highly anticipated public offerings on the Wall Street. The offer became even more lucrative after Goldman Sachs and other private investors poured in $1.5 billion into Facebook in January last year, taking the company's valuation to a whopping $50 billion.

If the IPO does raise the speculated amount of money, it would be an eyebrow-raising feat by Facebook.

It Will Put Facebook in the League of the Largest Public Companies in the World

Raising as much as $10 billion would ensure its place among the world's biggest companies by market capitalization. According to a report by the Associated Press, the IPOs of 14 companies would rank higher than Facebook's, including Visa Inc's $17.9 billion IPO in March 2008 and world-topper Agricultural Bank of China Ltd., which raised $19.3 billion in July 2010, not including extra shares issued to meet demand.

However, Facebbok's offering would be the biggest for a U.S. Internet company, dwarfing that of Google. The search engine giant made its market debut with a $1.7 billion IPO in 2004.

In addition, the amount of Facebook IPO would also surpass that of the earlier record holder, Infineon Technologies AG, which generated $5.23 billion in its 1999 debut. In 2000, Agere Systems Inc. raised $4.14 billion that put it in the second spot.

Is the Valuation Appropriate?

The expected $10 billion IPO could value the company at more than $100 billion, a number greater than twice that of the biggies like Hewlett-Packard and 3M, according to a WSJ report.

Facebook's $100 billion valuation would also be twice as high as in January 2011, when it announced investments from Goldman Sachs Group Inc. and other investors. But is that valuation appropriate?

Being a private company, very little information is known about how much profit or revenues Facebook actually makes through advertising. According to reports, it generates far less revenue from advertising than does Google.

Google had ad revenues last year of more than five times what Facebook is expected to get in 2013, the Associated Press reported.

According to a BBC report, a document sent by Goldman Sachs to its clients showed the firm made a net profit of $355 million on revenues of $1.2 billion in the first nine months of 2010.

Considering the huge popularity of Facebook already, there are questions over how much growth really lies ahead for the company, according First pot.

What we really need to look at is whether we are seeing a plateuing of user growth and engagement, one expert told Financial Times. There's likely stunning growth right now in emerging markets, but we need to see time spent growing, such as users listening to music, watching movies and buying products.

Media magnate Rupert Murdoch has also expressed his doubt. Facebook a brilliant achievement, but $75-$100bn? Would make Apple look really cheap, said Murdoch on Twitter.

According to Geoffrey A. Fowler of the WSJ, if Facebook is valued at $100 billion, the young founder would be worth $24 billion. The amount would place him right behind Microsoft's Bill Gates and Oracle's Larry Ellison, but well ahead of Google co-founders Larry Page and Sergey Brin, as per the estimates of their wealth.

Although Facebook has not disclosed the stakes of its largest owners, the journal reported that Zuckerberg owns about 24 percent of the company. However, Facebook will have to make its financial details public once it files the IPO paperwork, a regulatory requirement companies with more than 500 shareholders have to meet (Facebook is reaching that limit), according to a report in Statesman.