NET RESULTS:FACEBOOK'S INFLUENCE reaches some unexpected places.
As the Menlo Park, California-based company’s initial public offering (IPO) looms, there are a lot of expectations, and a lot of hands being rubbed together – and that’s not just the shareholding employees.
It’s anybody and everybody else who might get a slice of that social media cash. And there’s going to be lots and lots of cash.
Here are the basics. The documents Facebook filed in advance of its planned spring IPO indicate it will try to raise $5 billion (€3.78 billion) – expected to give the company a market valuation of between $75 billion and $100 billion.
It’s an extraordinary valuation, even at the lower number, placing an awful lot of confidence in future business plans. Last year, according to the documents, Facebook made $1 billion profit on $3.7 billion revenue, which is certainly very respectable. And revenue is double that of 2009. But those market valuations, even at the lower end of the scale, are eye-watering.
Is Facebook going to be worth that much over time? There’s plenty of debate about that, not least if you compare it with Google. Facebook made most of its revenue last year from ads, 85 per cent, translating to just under $3.2 billion of its $3.7 billion in 2010. Google took in $37.9 billion in revenue last year, with 96 per cent coming from ads. Google’s market evaluation early this week was about $166 billion.
However, those looking on from outside the technology and financial sectors don’t care that much about what happens longer term. They care about what happens in the next year, when many newly minted billionaires and millionaires will be flush with cash.
Their arrival cheers estate agents no end. In the Valley’s posher suburbs, from the hilly areas in the south bay all the way up to San Francisco, they expect a selling bonanza as employees and investors upgrade their digs.
That anticipation is already affecting the market, as some buyers rush to get a deal closed on a house before the Facebook millionaires enter the market. Already, pricy Menlo Park and Palo Alto see no shortage of buyers, regardless of price.
Of course, the area is crazy anyway, as wealthy techies vie for a home. Homes in the nicest areas of Menlo Park routinely sell in a few days at most. Palo Alto is even crazier. Family friends tell of a little two-bedroom house on a small lot in South Palo Alto, in a modest area, that was run down, the lawn overgrown.
In a bidding frenzy, 17 people drove the price up to just under $1.5 million. It will of course become yet another “tear-down”, with a larger house squished on to the lot. The bidders wanted the address, not the house.
But with the Facebook IPO looming, and anxiety building on what will happen to the real estate market, it is worse right now – or better, depending on whether you are a buyer, seller or estate agent.
Even way up in San Francisco, the long arm of Facebook affects communities. A recent article in the San Francisco Chronicle noted how the city’s Noe Valley district, a sunny area below Twin Peaks and above the Mission District, was now one of the city’s most desired addresses because of its access to highway 280, which makes a direct run down along Silicon Valley.
Time was when even many San Franciscans barely knew where Noe Valley was (I know; I lived there for several years). Now, says the Chronicle, houses sell swiftly to tech-industry employees wanting a city address but an easy commute to their employers; all nice city neighbourhoods that have good access to the freeways running to the Valley have maintained prices during the downturn. Realtors told the paper such homes are selling very fast right now as buyers struggle to get in ahead of, yes, the Facebook millionaires.
Of course, it isn’t all about houses. Restaurants, furniture stores, wine merchants, car dealerships – they are all hoping for the trickle-down of that Facebook IPO cash.
As is California itself. The California Legislative Analyst’s Office, which provides nonpartisan fiscal and policy analysis for the California Legislature, predicts that Facebook’s pending IPO could bring in $2.5 billion to the State’s coffers in taxes. A lot of that will come from Facebook founder Mark Zuckerberg, who has indicated he will cash in about $5 billion of shares, with an expected federal and state tax bill of $2 billion.
As a tax lawyer noted in a piece in the New York Times, though, he may never pay taxes on the remainder of his approximately $28 billion-worth of shares. Like Oracle chief executive Larry Ellison has done, he can just borrow against his wealth, using the shares as collateral rather than cashing them in.
But again, that’s the future. For now, all eyes are on the short-term IPO cash bonanza.
