$10 Billion IPO, Facebook

Facebook announced today about its intention to float $10 Billion IPO. Only 10 times there has been an IPO of more than $10 billion. The biggest IPO by an Internet based company was from Google, that was less than $2 billion. So how is Facebook so different from others? Its revenue almost doubled from last year and in current fiscal year its projected revenue is $4 Billion.

There are two moot question about Facebook IPO

1) Is $100 billion valuation correct?

2) What Facebook plans to do with $10 Billion?

IPO generally is backed by a need of financing some project or need of expansion. It is unclear why Facebook needs so much of money.

About valuation, its difficult to imagine a $100 billion internet company, whose core competency is to help people connect. Yes it has more than 500 million users who log-in daily. But does that makes it so much valuable. Its earnings has been very small until recent years. Even if we use very optimistic approach and say Facebook advertisement revenue will keep growing at average 15% and lets assume that its cost of capital is around 20%, then also its valuation only comes to $80 billion.( used perpetual growth model). $100 Billion is just a relative valuation done based on investment into Facebook.

To me Facebook looks overvalued and it don't need money. IPO is just way for its investors to make money.

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