Facebook files for initial public offering to raise (maybe) $5 billion

Social networking giant to trade under FB symbol, though exchange isn't revealed

The rumors were true!

Facebook on Wednesday filed for an initial public offering of shares, kicking off the process of launching the most highly anticipated Internet IPO since Google's in 2004.

Already, though, there are questions. Left blank on the prospectus were the number of shares to be sold and the offer price, along with the exchange on which the stock will trade (New York Stock Exchange or NASDAQ).

The ticker symbol will be FB. Lead underwriter is Morgan Stanley, followed by JPMorgan Chase and Goldman Sachs.

Facebook hopes to raise $5 billion with the IPO, though that number is preliminary and likely to change. The numbers kicking around the Internet for weeks have been an IPO that would raise $10 billion, thus putting Facebook's value at $100 billion. It could be that Facebook is waiting for Wall Street reaction to its S-1 before determining the number of shares to be sold and the price.

Let's look quickly at financials:

* Total revenue in 2011 was $3.71 billion, almost double the $1.97 billion in the previous year and about five times the $777 million in 2009.

* Net income in 2011 is listed as a flat $1 billion, nearly two-thirds more than the $606 million in 2010 and almost four times the net income of $229 million in 2009.

* 85% of Facebook's revenue comes from advertising, with another 12% coming from social games maker Zynga.

* Facebook says it has $3.91 billion in working capital.

User metrics:

* 845 million monthly active users, up 39% from 608 million MAUs as of December 31, 2010.

* 483 million daily active users (DAUs) on average in December 2011, up 48% from 327 million DAUs in December 2010.

In my opinion, the DAUs are much more relevant in determining Facebook's actual popularity. MAUs are meaningless and inherently contradictory. Is someone who goes onto Facebook once a month truly an "active" user?

It's also worth pointing out that only 57% of the users routinely cited in the media and by the company as "active" users are on Facebook every day. I wonder what percentage of them are under age 15.

Now for some of the risks, as described by Facebook in its S-1:

If we fail to retain existing users or add new users, or if our users decrease their level of engagement with Facebook, our revenue, financial results, and business may be significantly harmed;

We generate a substantial majority of our revenue from advertising. The loss of advertisers, or reduction in spending by advertisers with Facebook, could seriously harm our business;

Growth in use of Facebook through our mobile products, where we do not currently display ads, as a substitute for use on personal computers may negatively affect our revenue and financial results;

Facebook user growth and engagement on mobile devices depend upon effective operation with mobile operating systems, networks, and standards that we do not control;

We may not be successful in our efforts to grow and further monetize the Facebook Platform;

Our business is highly competitive, and competition presents an ongoing threat to the success of our business;

Improper access to or disclosure of our users’ information could harm our reputation and adversely affect our business;

Our business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could harm our business.

Of all the risk factors above, the first one and the last two strike me as the most genuine. At some point, Facebook Fatigue could kick in. At the very least, growth eventually will slow.

Regarding the latter two, when your business is about trying to make money off users' personal information, privacy will be breached. The only question is what the fallout will be in terms of users and regulators.

There's a lot more in the S-1, but I've covered the highlights. I'll probably have more on Thursday, including analyst reaction.

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