Facebook is expected to go public in early 2012, according to the word on the street. Here’s why Facebook doesn’t really need to go public, and shouldn’t.
The biggest advantage of being a privately held company is the tremendous amount of control that the management team has over the company. Mark Zuckerberg has been postponing a public offering for this very reason. Going public would not only loosen his grip on Facebook, but also force him to focus on appeasing shareholders in the short-term, by focusing on profits, instead of making long-term decisions to compete with Google and its other competitors.
Private companies have one significant advantage over public ones – secrecy or privacy. They don’t have to reveal anything at all. Keeping your financials and other information give you a slight edge over your public competitors, an advantage Facebook will lose once it goes public.
It doesn’t need the cash
According to a report by Gawker, Facebook is rolling in cash. It made a net profit of $714 million in the first three quarters of 2011, and currently has around $3.5 billion cash in the bank.
It has enough cash to maintain its high growth rate and continue its startup acquisition spree.
Despite these reasons, it will still be forced to go public. Here’s why:
Facebook has long surpassed the 500 shareholder limit, which requires it to go public by April 2012. By SEC rules, it will have to publicly disclose its financials then. If it has to reveal all its internal financial data to the world, why not go public and raise some cash while it’s at it.
Pressure from investors for an exit
Around 30% of Facebook is owned by early investors and VCs, who put in a lot of cash and funded Facebook in its earliest stages. Facebook has been the best investment for those who got in early. The only way they will make an exit is if Facebook goes public, which is what it will eventually be forced to do.
Allowing employees to cash in
All the employees have been waiting, for years now, for Facebook to go public. More than 1000 Facebook employees will become millionaires if Facebook goes public at a $100 billion valuation. Facebook will eventually have to go public, if they are to cash in their employee stock options.
Companies generally go public when they need to raise money for operations or expansion. Facebook doesn’t really need to go public because it has tons of cash already and is generating more every quarter, but it will have to.