Status update: Facebook files for $5 billion IPO

The Facebook logo is displayed outside of Facebook's new headquarters in Menlo Park, Calif., Thursday, Jan. 12, 2012.

February 1, 2012 9:16:56 PM PST
Facebook had a lot of friends cheering its status Wednesday. They like the fact that Facebook is going to make a $5 billion stock market debut.

Last year, Facebook's revenue was nearly $4 billion, up 88 percent; and the company made $1 billion in profit.

The $5 billion figure isn't etched in stone. Securities experts say it could change in the weeks ahead as Facebook's financial records are reviewed, dissected, and evaluated.

Santa Clara University Law Professor Steve Diamond explains the process is complex.

"If they overprice and then they don't meet expectations, they face the risk of lawsuits and investor disappointment; if they underprice, it means they leave money on the table that they don't bring into the company, so this is new cash into the business," Diamond said.

Whatever the final figure, it will be money that Facebook can use to expand its services, hire more employees, or even acquire some startup's with technology it wants or needs.

But Facebook already has a lot of cash on hand -- $3.9 billion. That's quite a bit for a company going public, so it appears the company has more money coming in than its spending. Eighty-five percent of its revenue comes from advertising.

But all that money puts Silicon Valley competitors at a disadvantage.

"You see an arms race for what is a scarce commodity, which is really great people, and that's how it does impact the rest of the Valley because while the success of many of these companies is a wonderful thing and it drives up the wealth for everyone, it does make it more difficult for Valley companies," Azul Systems President and CEO Scott Sellers said.

Facebook mentioned some of its competitors in its filing with the Securities and Exchange Commission, calling Twitter and Google Plus as potential threats to its future.

Going public means Facebook will change how it operates. An IPO opens the books, meaning its financial records must be public. It will require Facebook to be more transparent and Facebook will have to answer to its shareholders, hold an annual meeting, and be subject to federal reporting requirements.

The trade-off is giving Facebook the ability to expand its global reach. In Facebook's IPO filing with the Securities and Exchange Commission, CEO Mark Zuckerberg laid out his vision, saying, "The scale of the technology and infrastructure that must be built is unprecedented, and we believe this is the most important problem we can focus on. We hope to strengthen how people relate to each other... We hope to improve how people connect to businesses and the economy... We hope to change how people relate to their governments and social institutions."

Even once the company goes public, Zuckerberg will retain control of the company he started while a student at Harvard University eight years ago. The Associated Press reports he will have the final say on how nearly 57 percent of Facebook's stock votes, according to the filing.

Taking a cue from late Apple CEO Steve Jobs, Zuckerberg requested an annual salary of $1. His stocks could make him a billionaire and he will also likely continue to receive hundreds of thousands of dollars worth of corporate perks. Last year, Zuckerberg made $1.5 million.

It will be another three months or so before Facebook stock begins trading.