The Facebook IPO: From Billions of Likes to Billions of Dollars

The Facebook IPO: From Billions of Likes to Billions of Dollars

Investors were salivating over Facebook's filing on Wednesday for a $5 billion initial public offering most likely in late May.

The IPO will make history: It will be the biggest technology IPO ever, surpassing current record-holder Google, and the sixth-largest U.S. IPO ever.

The numbers are mind-boggling. The IPO sets the future of the value of the company at between $75 billion and $100 billion, making it bigger than Disney, Goldman Sachs or General Motors. (And just a year ago, it was "only" worth $50 billion!)

But just what makes it so valuable? Facebook doesn't produce anything. It doesn't even give us any kind of service that we normally pay for. It just enables us to conduct online the social interactions we have in real life—make friends ("friend"), talk with them ("comment"), gossip ("share") and express our personal interests ("like").

So how does all that translate to $1, let alone $100 billion?

You're Giving Facebook a Lot of Information

One reason Facebook's IPO has us abuzz has to do with this little era we are in called the Information Age.

Every time you share a link, like a website, change your relationship status, or comment on an article using your Facebook login, that information could be useful to somebody—like, you know, an advertiser. For instance, if you live in Chicago and change your relationship status to engaged, you can bet that a Chicago-based wedding photographer wants to get in front of you.

That's just one small example. In its IPO filing, Facebook revealed that in the last three months of 2011, users generated 2.7 billion likes and comments ... per day. Suffice it to say, there is no shortage of advertisers eager to use that information.

Facebook's vice president of product said in a recent interview, "The challenge of the information age is what to do with it." Well, the company figured that one out.

Actually, a Lot of People Are Giving It a Lot of Information

In fact, worldwide, 845 million of us.

And those accounts aren't just slouches who never log on. More than half of Facebook users log onto the site every day. In total, they spend more than 9.7 billion minutes a day on the site. (That's almost 18,500 years per day!)

So, when you think you're wasting time on Facebook, you're actually filling the company's coffers. The New York Times reports, "According to Facebook, in December 2011, an advertiser could reach an estimated audience of more than 65 million United States users in a typical day on Facebook, compared with “American Idol” reaching an audience of 29 million people with its 2011 season finale." If you were an advertiser, which vehicle would you choose?

No need to answer. The advertisers have already spoken: Facebook is the largest U.S. platform for display advertising on the Web, receiving 28% of all display ads. (Impressed? Find out whether you should buy Facebook stock when it IPOs.)

You're Even Giving It Information When You're Not on the Site

But don't think that when you leave Facebook, it can no longer see what you're up to.

How many times have you been prompted to sign in with your Facebook login when on another site? This so-called Facebook Connect feature means the company can amass even more data about our likes—even when we're not trolling our newsfeeds.

As one former Google executive described it to the New York Times, “Fifteen years ago, AOL was the internet to most people, five years ago it was Google, now Facebook is the internet.”

Information: The Double-Edged Sword

Facebook's boon could also be its downfall: privacy.

In fact, many of the controversies the company has endured so far have to do with privacy: i.e., the facial recognition technology used to recognize people in uploaded photos, privacy settings and Beacon, a tool that automatically posted to people's pages what they did or bought on other sites.

If the company manages to safely walk the line between gathering information and protecting privacy, Facebook could live up to the hype of its IPO and actually someday be worth $100 billion.

“Facebook will have more traffic than anyone else, and they’ll have more data than anyone else,” as Kevin Landis, the portfolio manager of Firsthand Technology Value Fund, which owns shares in Facebook, told the New York Times. “So, unless they are impervious to learning how to monetize that data, they should be the most valuable property on the Internet, eventually.”

At that point, we'll start calling our era the Facebook Age.

More on LearnVest

Read the instant message in which 19-year-old Mark Zuckerberg decides to found Facebook.
Decide whether or not you should try and buy the Facebook IPO.
Could your Facebook friends hurt your credit score? It depends.

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