Facebook Faces Loss of Its Privacy
Facebook has hit the big time, and that means the company that's famous for annoying users by compromising their privacy will have to swallow a bit of its own medicine. With investors expected to number more than 499 by the end of this year, Facebook will be forced to reveal its financial secrets to comply with SEC regulations and is likely headed for an initial public offering by mid-2012.
Top social network Facebook inadvertently revealed that it is preparing to go public with its financial data sometime in 2012. Facebook expects its investor population to exceed 499 this year, it reportedly states in a private placement document leaked to a number of media outlets from Goldman Sachs, which would compel it to disclose tons of financial information.
Per SEC rules, companies have to report financial data within 120 days of the end of the year they reach 500 investors.
Investor interest in Facebook has grown with stepped-up private trading by former employees and early investors on websites such as SharesPost and SecondMarket. On Monday, Goldman Sachs announced it made a US$500 million investment in Facebook, which pegged Facebook's value at $50 billion.
The leaked document -- hand-delivered to potential Goldman investors on Thursday -- reportedly reveals details about Facebook's earnings, its plans for an initial public offering (IPO) and the SEC's investigation of Facebook's total investor population.
One nifty jewel from the document: Facebook's net income for the first nine months of last year was $355 million.
Facebook did not respond to the E-Commerce Times' request for comments by press time.
Investor Frenzy for Social Networking
Facebook's value just last year was $10 billion. This mammoth increase in value over the past year gives it and its exclusive group of investors the incentive to go into public trading. The negative side of this is the reporting of revenue, profits or losses and executive compensation -- not to mention getting grilled on Wall Street.
Social networking companies have been receiving tons of investor interest recently. Information surfaced this week that LinkedIn, a business networking site, has begun talks with bankers about an impending IPO. Last month, Twitter recently received $200 million in investment dollars from the Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers.
What Does an IPO Mean for Facebook?
The growth in investors and a potential IPO could change the face of Facebook. "It means that Facebook and its investors want to take advantage of the amazing momentum the company has generated," Azita Arvani, principal of the Arvani Group, told the E-Commerce Times. "Social networking is hot, and Facebook is the king of that hot market right now. They can get a rich evaluation, and who knows what could happen later?"
Facebook's prominence and popularity dwarfs every other social site.
"Social networking sites such as LinkedIn will work hard to shine in the shadow of Facebook and get investments or seriously consider IPO options," said Arvani. "Let's hope it is not another bubble, because things are moving a bit too fast for logic to kick in."
No Privacy for Facebook
A Facebook IPO will have an impact on Facebook's freewheeling culture.
"What it means, bottom line, is more accountability -- more accountability to its investors, more accountability to its customers and to Wall Street, including the financial analysts," Laura DiDio, principal analyst at ITIC, told the E-Commerce Times.
"One of the reasons a company will stay private is so they don't have to open the kimono and reveal info about their financial dealings. Guess what -- there will be transparency," she added.
Facebook looks like a sound investment even in a tough economy.
"A Facebook IPO in 2012 is good timing," said DiDio. "They show no evidence of imploding."
That said, the company will have to dress itself up to walk with the major players.
"They have to manage their tremendous growth and popularity. There are been issues about privacy -- they will have to get a handle on it," said DiDio.
"As much of a wonderkid Zuckerberg is, he's still young and has things to learn. Going public will keep him more accountable. He will be in the big leagues -- like Steve Jobs, or Larry and Sergey at Google."