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Wall Street clicks 'like' on Facebook IPO

Facebook's expected public offering could mean pandemonium for investors and big fees for brokerages.

January 26, 2012|Jessica Guynn and Walter Hamilton, Los Angeles Times
  • Facebook employees work in community-based groups at their Menlo Park, Calif., campus. The Facebook IPO is likely to make about 1,000 of the employees millionaires.
Facebook employees work in community-based groups at their Menlo Park,… (Mark Boster, Los Angeles…)

Reporting from Menlo Park and Los Angeles — Wall Street is about to get Facebook fever.

The social networking giant with nearly 1 billion users is expected to file papers any day now to sell stock to the public. The timing stems partly from federal rules that would require Facebook to begin disclosing its financial information in April because of its phenomenal growth.

Beyond minting an estimated 1,000 new millionaires at the company, Facebook's initial public stock offering could provide a huge boost to Wall Street investment banks sorely in need of a hot stock to excite investors. The right to manage the IPO will also generate an estimated $250 million in fees.

"This will be the largest IPO of the year for sure and probably of the decade," said Max Wolff, senior analyst at GreenCrest Capital Management in New York. "There is literally a fortune in fees, which is occurring in a slow market. There's also bragging rights. These firms want to be able to go to their clients and offer them an allocation of the Facebook IPO."

Facebook is expected to raise $10 billion in the offering, giving it a market capitalization of $100 billion. Google, by comparison, raised $1.9 billion in its IPO in 2004.

Shares of Google skyrocketed on their opening day, and analysts expect Facebook shares to do the same.

"The minute the IPO is filed, there will be pandemonium," said IPO Boutique's Scott Sweet, who says he has never seen anything quite like the pent-up demand for Facebook shares. "And this is coming from someone who has seen extremely hot IPOs. I have seen pandemonium."

A successful IPO by one of the country's most prominent companies also could power the stock market higher by attracting scores of investors who have been scared off by the volatility in recent years.

"People are looking for something that's going to give them confidence," said David Menlow, president of IPOfinancial.com, a research firm in Millburn, N.J. "They'd like to believe the IPO is going to be a strong one."

State officials are also counting on the IPO to help with California's budget crisis. Recent technology IPOs have added hundreds of millions of dollars to state coffers from capital gains taxes.

Facebook has become one of the world's best-known consumer brands and the Web's most popular hangout. And sometime this year it's expected to hit 1 billion users. That's half of all people on the Internet and 1 in 7 people on the planet.

Mark Zuckerberg founded the company in his Harvard dorm room at age 19. Now 27, Zuckerberg's stake in Facebook will be worth an estimated $20 billion after the IPO — making him one of the world's richest men.

The company's success lies in the hoard of information it holds about its users — valuable information that advertisers can use to target their products and services. Its growing business has escalated competition with rival tech giants Google andApple Inc.

Now Facebook is looking to build a war chest from the IPO to dominate the Web for decades. Can Facebook stake its fortune in social networking in the wildly profitable way Google did with Internet search?

Swarms of investors can't wait to find out. Even everyday users are looking forward to poring over Facebook's prospectus — the first in-depth glimpse at Facebook's financials — as if it were the next installment of "Twilight" or "Harry Potter."

How much money the company is making is a closely guarded secret. But that will soon change.

Within days or weeks, Facebook is expected to file papers with the U.S. Securities and Exchange Commission announcing its intent to sell stock. As part of the filing, Facebook will release a prospectus with detailed financial information, including its revenue and income.

The actual sale of stock typically occurs about three months after the initial filing.

In fevered anticipation of the IPO, shares have surged on private trading exchanges. This week, Sharespost sold a block of 70,000 shares at $34 a share. At that price, Facebook is already valued at more than $80 billion.

Some are hanging back. Just because you use Facebook doesn't mean you should own it, at least not right away, especially given the lackluster debuts of high-profile Internet companies Groupon and Zynga.

"Expectations are so high, and there have been so many rounds of investment on private exchanges, one has to wonder how much upside is left once Facebook becomes a public company," said Anthony Valencia, media analyst at TCW Group.

Those expectations couldn't be any higher than on Facebook's splashy new Menlo Park campus 30 miles south of San Francisco on the edge of tidal mud flats and salt marshes. Every square foot of the 57-acre campus still under construction speaks to the ascendance of Facebook. Hacker Way is now the premier vanity address in Silicon Valley.

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