Facebook updates its status – by $100bn

The social networking site changed the way we communicate. Now, as it floats on the stock market, all the talk is about how much it is worth. By Stephen Foley

New York

Facebook last night launched the most hotly anticipated stock market flotation since the dotcom bubble burst more than a decade ago, promising to sell its shares to the public in a deal that will make billionaires of its founders and which could value the company as much as $100bn (£64bn).

In an announcement laden with ambitious declarations and astonishing revelations about the social network's growth, Mark Zuckerberg, the 27-year-old computer whiz who created the company in his Harvard dorm room eight years ago this week, said Facebook was just at the start of "a social mission" to change the way people around the world share information.

"Facebook was not originally founded to be a company," he said, in a letter included in the 199-page share prospectus published yesterday. "We've always cared primarily about our social mission, the services we're building and the people who use them. This is a different approach for a public company to take."

It will take Wall Street and technology industry analysts days to digest all the information revealed last night, but what was immediately apparent was how potential investors are being asked to make a bet on Mr Zuckerberg himself. The Facebook chief executive owns 28 per cent of the company and he will control more than half of the votes, thanks to arrangements with his early backers and because of an unusual share structure designed to limit the power of new shareholders.

If investor demand for Facebook is as high as the excitement over yesterday's announcement suggests, the company could price at the top end of the mooted $75bn-$100bn range, making Mr Zuckerberg worth $28bn on paper.

Mr Zuckerberg's Harvard friend and co-founder Dustin Moskovitz, who stayed with the company until 2008, could be worth more than $7bn. The flotation, likely to be completed in May, could also make billionaires of Eduardo Saverin, another co-founder whose breach with Mr Zuckerberg was the subject of the film The Social Network – though his stake was below the 5 per cent that means it has to be disclosed. Jim Breyer, a veteran Silicon Valley investor, and Peter Thiel, a founder of PayPal, each have stakes in the several billions of dollars, too.

More than one-third of Facebook's 3,000 employees could be paper millionaires when the stock floats.

Interest in the Facebook prospectus was so high that its formal publication by the US Securities and Exchange Commission last night slowed the agency's website to a crawl. The document detailed how quickly Facebook's business has grown and extended its profitability. In 2007, just three years after its creation, it brought in revenues of $153m. Two years later it brought in five times that amount and turned a maiden profit of $229m. Last year it had revenues of $3.7bn, and a profit of $1bn.

But analysts say Mr Zuckerberg faces a crucial test to keep his company on an even keel despite the flotation hoopla. As well as having to ensure that his mega-rich employees keep turning up for work every day, he will have to assure the company's most important asset – its 845 million users – that he will be a responsible guardian of their privacy, despite the demands of his new shareholders to make ever more profit from the use of their personal data.

"Facebook has changed the way companies believe they should market, by making them communicate directly with their customers," said analyst Debra Aho Williams of the research firm eMarketer. "Yet it is still at a very early stage of what it could become and the business it could build from the data it has collected and will be capable of collecting, with the host of privacy questions that raises. The one thing that has not changed is that Facebook is very comfortable pushing the envelope in terms of what data it collects and what it can use for advertisers. At every turn it keeps winning. There have been privacy outcries over each change, but users soon forget – because using Facebook is fun."

The prospectus included pages of disclosures on the legal risks facing the company, including possible lawsuits over privacy issues and the threat of a clampdown on what could be done with users' personal data under new laws being proposed in Europe and the US. Nonetheless, the company also lays out the opportunities it saw for providing advertisers with the ability to closely target messages based on users' personal preferences, as revealed in their Facebook profile and online habits. Late last year, Mr Zuckerberg unveiled a raft of new features designed to encourage users to listen to music, share news stories and video chat with each other, all within the site.

Keeping the company's elite developers focused on building these kinds of new features will be a priority for Mr Zuckerberg in the weeks before and after the flotation, said Kevin Werbach, associate professor at the Wharton Business School. "To the extent that someone went to work at Facebook in its early days because of the prospect of a big pay-off on flotation, it is true that once you get that pay-off it will be harder to motivate them. That is potentially why the company waited so long to go public, essentially until they were pushed to do so. Management has indicated that they are in it for the long haul and to build a great company that will change the world, and that is something that employees look up to. The issue is whether Facebook management says the same thing the day after the flotation as they did the day before."

October 2003

Mark Zuckerberg, 19-year-old psychology and computer science student at Harvard University, sets up Facemash, a website where users can rate the attractiveness of fellow students. The site is shut down and he's threatened with expulsion.

February 2004

Zuckerberg, with Eduardo Saverin and Dustin Moskovitz, launches a new site, Thefacebook. Three fellow students, twins Cameron and Tyler Winklevoss and Divya Narenda say Zuckerberg stole their idea.

June 2004

Thefacebook, which has rapidly spread to 30 American universities, is incorporated as a company. Entrepreneur Sean Parker, who has been advising Zuckerberg, becomes the company's President. The website later drops "the" from its name.

2005

Eduardo Saverin is gradually marginalised by Zuckerberg and Parker. The falling out between old friends Zuckerberg and Saverin leads to a series of lawsuits and counter claims that are finally settled with Saverin taking a £1.6bn share in the company.

September 2006

Facebook, now used by universities, high schools and businesses worldwide, is opened to everyone over 13.

October 2007

Microsoft pays $240m (£151m) for a 1.6 per cent share in the website.

August 2008

Facebook has 100 million users worldwide. It hits 500 million less than two years later.

October 2010

'The Social Network', a film charting the feuds at the top of Facebook, written by Aaron Sorkin, is released to critical acclaim. The plot focuses on the disputes over ownership of the Facebook name and idea, between Zuckerberg, Saverin and the Winklevoss twins.

December 2010

Mark Zuckerberg is named Time Magazine's Man of the Year

June 2011

The Winkelvoss brothers finally settle their lawsuit against Facebook for $65m.

September 2011

Facebook timeline is launched

 

January 2012

Facebook, now with 800 million users, goes public on stock exchange. Zuckerberg's personal stake could be $20bn.

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