EconomyWritten by Havre On 24 April 2012
Facebook’s Acquisitions Could Delay IPO

Facebook’s recent acquisitions — the photo app Instagram for $1 billion and patents from Microsoft for $550 million — could delay its IPO because it needs to update its SEC filings with corresponding additional disclosures. Facebook originally filed for its IPO on Feb. 1, with an expected launch date of May 7. The “road show” for the offering, which usually takes 10 to 14 days, has yet to begin. With the Memorial Day holiday soon, we are now looking at an IPO in late May or even June.

We also have learned how fast this company is growing, justifying the projected $100-billion-plus valuation. Facebook released first quarter 2012 numbers and they are impressive. It has over 900 million active users, and 500 million using mobile devices. Revenues for the quarter topped $1.06 billion, versus $731 million in the same quarter the previous year. Net income did drop from $233 million last year to $205 million in this year’s first quarter. This is mostly due to higher employee costs as it added 1,100 positions over the year to today’s level of about 3,500 employees.

There are some issues with delays to the IPO. The stock markets traditionally have more liquidity during May as opposed to June, prompting the common phrase, “Sell in May and go away.” Another issue is the insiders, who will be in the usual “lock-up” situation, meaning that they cannot sell any of their shares for six months. If the delay goes past June, those shareholders looking to cash-in on some of their shares will be subject to the tax rates of 2013. Remember, the Bush Tax Cuts are due to expire at the end of the year and nobody is really sure how that will play out.

Locally, we saw something similar when Digital Island had a very successful IPO during the tech bubble 12 years ago. It was able to get its IPO off in time so that insiders had the opportunity to either sell at the end of the year when the lock-ups came off, or wait a few days to sell in January, depending on their individual tax situation.

Digital Island was a perfect example of the bubble as it had a business plan where it lost more money every time it added customers. Investors just closed their eyes as the share price topped out over $150. When the bubble burst, it dropped all the way down to about $1.50 per share.

We expect Facebook to get its act together and move this IPO forward for these reasons and also the need to keep the momentum going. Nine-hundred-million users and growing is no doubt awesome.

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Havre

Randy Havre has a wealth of experience in the financial industry. In 1987, he established his own full-service stock brokerage firm, which was also registered with the SEC as an Investment Advisory Firm, managing money for the State of Hawaii’s pension fund, among other portfolios. In 1994, he started his first of three Hawaii based Venture Capital Funds. Additionally, he wrote a weekly stock column in the Pacific Business News for 21 years, taught Finance 315 Portfolio Management and Investment Strategies at the University of Hawaii for five years and is on KHON’s Morning News as a business/financial analysis twice weekly. Over the past nine years, Havre has been active in South America doing business development work for some of his portfolio companies, mentoring entrepreneurs and advising investors.

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