Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

Breaking Views

Buzz rises for Facebook IPO

That's the talk of Silicon Valley after the social networking site boots its CFO for Netscape's former finance chief.

By Jeff Segal, breakingviews.com

(breakingviews.com) -- Facebook is gearing up to befriend investors. That, at least, is the chatter around Silicon Valley after the social networking darling booted its chief financial officer. But an IPO would be risky given Facebook's business model is still unproven - unless it has a gun to its head.

And it just might. The company is keeping mum. But the talk is that the capital Facebook raised from Microsoft (MSFT, Fortune 500) two years ago may have had strings attached that could force it to launch an IPO sometime soon. That would explain why Microsoft's $240 million investment seemed to give the group such a massive valuation, at $15 billion.

It's easy to see why Silicon Valley is awash in Facebook speculation. The firm's CFO, Gideon Yu, left abruptly earlier this week. The company said it wanted someone with more public company experience and is now taking advice from Peter Currie, the finance chief who led Netscape into the defining IPO of the dotcom-boom.

But an offering would seem foolhardy in a market as volatile as today's, especially given Facebook's finances. It is thought to have only brought in some $265 million in revenues last year, with negative cash flows of some $150 million. Though the company says it won't make money until next year, Facebook says it has sufficient capital to meet its needs.

So why would Facebook need a financial executive with public company experience? One theory is that it gave Microsoft the right to put its stock back to Facebook if the company didn't launch an IPO by a certain date. Such rights aren't uncommon in privately placed venture capital deals. That would explain the $15 billion price tag, which is some $9 billion above Facebook's own internal valuation.

Such a deal looked more appealing two years ago. Markets were booming and the social networking craze was going gangbusters. Indeed, Facebook has grown its membership to nearly 200 million from just 40 million when Microsoft, alongside Hong Kong mogul Li Ka-Shing, invested in the group.

There could be other reasons to consider an IPO too. Employees may want liquidity on their stock options. The number of investors also may be growing to the point where the company can no longer be treated as a private concern - a factor that led Google (GOOG, Fortune 500) to debut. Or there could be nothing to the idea circulating through Silicon Valley. But where there's poke, there's usually fire. To top of page

Company Price Change % Change
Bank of America Corp... 22.36 -0.66 -2.85%
Reynolds American In... 57.80 1.83 3.26%
Apple Inc 119.93 0.89 0.75%
Ford Motor Co 12.67 0.04 0.32%
Pfizer Inc 31.83 -0.69 -2.12%
Data as of 12:35pm ET
Index Last Change % Change
Dow 19,841.17 -44.56 -0.22%
Nasdaq 5,546.48 -27.64 -0.50%
S&P 500 2,270.15 -4.49 -0.20%
Treasuries 2.35 -0.03 -1.30%
Data as of 12:50pm ET
More Galleries
The Obama economy in 10 charts President Obama came to office in January 2009 in the midst of the Great Recession. Much has turned around since then, but he's been criticized for a slow recovery. More
Best Jobs in America CNNMoney/PayScale's top 100 careers with big growth, great pay and satisfying work. More
Top-paying jobs Anesthesiologists take home a median $335,000 in salary and bonus annually. What other great careers from CNNMoney and PayScale.com's list of Best Jobs in America offer hefty paychecks? More
Sponsors
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play