Markets braced for Facebook IPO

EQUITY markets across the world will be keeping a close eye onMark Zuckerberg over the next year.

The eccentric founder of Facebook, who at the tender age of 26 isestimated to be worth a staggering dollars 6.9 billion (GBP4.5bn),is tipped to stage a flotation of his social networking site thisyear, triggering what some analysts predict could be a second dotcomboom on the markets.

With Goldman Sachs and a Russian investment firm last weekploughing dollars 500m into Facebook, Wall Street is preparingitself for a flurry of technology IPOs (Initial Public Offerings)with rumours flying that LinkedIn, the social networking site forprofessionals, could even pip Zuckerberg to the post with aflotation in the first quarter of this year.

Zuckerberg, whose fame is now such that Hollywood made a film ofhow he founded the site in a Harvard University dormitory, hasdenied the IPO rumours but the entrance of Wall Street behemothGoldman has sent market speculators into overdrive.

Goldman is selling dollars 1.5 billion of Facebook shares toprivate clients, and technology specialists across the Pond believeit's only a matter of time before a flotation is announced.

Last week's investment from Goldman and Russia's Digital SkyTechnologies saw the site valued at dollars 50bn - in other wordsaround dollars 100 for each of its 500 million users. This wouldrank Facebook above Boeing, the 100th biggest public company in theworld.

While the entrance of Goldman on to the scene has caused severalinvestors to sit up and listen, Facebook's dollars 50bn valuationhas also caused more than a few raised eyebrows - particularly amongthose who experienced the boom and bust of the last dotcom era.

The lack of information around how the social networking sitesgenerate their income lies at the core of these concerns.

On Friday, a leaked document sent to Goldman clients revealedthat Facebook generated dollars 1.2bn in revenue in the first ninemonths of last year while profits stood at dollars 355m during theperiod.

Ryan Jacob, of the Jacob Internet Fund, said: "It just shows youthat these businesses can generate 30 per cent to 40 per cent,potentially, operating margins.

"They [Facebook] probably did at least dollars 500 million in netincome in 2010."

But the blogosphere remains full of sceptics. The financialstatements were unaudited and revealed little detail about howFacebook generates its revenues.

While parallels have been drawn with Google, which was valued atdollars 50bn in 2004, veteran analysts and commentators are yet tobe convinced that many of the social networking sites are worthanywhere near their estimated values. There are fears that investorssucked into this year's wave of technology IPOs could end up withtheir fingers burned.

As Dennis Howlett, a blogger for technology website ZDNet, pointsout, valuations are currently based on the sentiment of a "privateclub" of investors since very little information is publiclyavailable. "I have a sneaking feeling that part of this currentvaluation is tied to Goldman wanting to make a market as a sell sidebanker," he says.

Nevertheless, whether Zuckerberg presses the button on an IPO ornot this year, Barclays Capital estimates online firms will steal asizeable portion of the markets' attention. It estimates technologyIPOs will constitute 15-20 per cent of all US flotations this year,up from 10 per cent in 2010 and 5 per cent in 2009. And as SquareMile analysts frequently point out, where the US goes, UK marketsquite often follow.