300 Million Reasons for Facebook to Go Public

Facebook sure has put on a lot of weight this summer. Over the past two months alone, the social-networking site has packed on another 50 million registered users.

Yes, Facebook is taking over the world.

It was mid-July when the company was celebrating a new milestone: A whopping 250 million users. Yesterday it announced that it passed the 300 million mark. Summer may be the seasonally sleepy chunk of the cyberspace calendar, but it's hard to keep a viral trend down.

The real nugget in Mark Zuckerberg's mile-marker announcement is that Facebook is now taking in more money than it's spending.

"Earlier this year, we said we expected to be cash flow positive sometime in 2010, and I'm pleased to share that we achieved this milestone last quarter," he writes. "This is important to us because it sets Facebook up to be a strong independent service for the long term."

Did you catch that? Zuckerberg's blog entry is intended for "fans" of the site. How many do you think grasp the concept of cash flow? Not many, one would think. This feels more like it's telegraphing an IPO to prospective underwriters. If not, then Facebook is ringing the dinner bell for Yahoo! (Nasdaq: YHOO  ) , Microsoft (Nasdaq: MSFT  ) , or any potential buyer.

One can argue that Zuckerberg is too proud to cash out. He also told Reuters that any potential IPO is still a few years away. Then again, he said that back in May -- Facebook was just a 200-million-member baby at the time. We still didn't know if the market rally was sustainable.

Facebook would be doing Wall Street a favor by going public now, giving it a sexy name to chew on.

The social-networking sites that are part of public companies -- News Corp.'s (NYSE: NWS  ) MySpace, Google's (Nasdaq: GOOG  ) Orkut, and Time Warner's (NYSE: TWX  ) Bebo -- are yawn-inducing laggards compared to Facebook.

One can always argue that a cash-flow positive Facebook doesn't need to go public, but the company clearly needs to find a way to attach a real value to the stock options it's offering key hires for retention purposes. The mile markers will eventually slow down, so it may as well strike while the accelerator pedal is hot.

It planted the IPO seed yesterday. Now let's see if it remembers to water it.

Google is a Motley Fool Rule Breakers selection. Microsoft is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz remembers when social networks were an offline endeavor. He does not own shares in any of the companies in this story. He is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.


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Comments from our Foolish Readers

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  • Report this Comment On September 16, 2009, at 2:35 PM, TMFKris wrote:

    I think regular folks can figure out that being "cash flow positive" is a good thing. Cash, flowing, positive. But to learn more about cash flow, they can go to the Fool's investing wiki. http://wiki.fool.com/Cash_flow

    I had to say it.

    Kris (Motley Fool copyeditor)

  • Report this Comment On September 16, 2009, at 4:29 PM, dudemonkey wrote:

    Did you read their definition of free cash flow? They're subtracting recurring CapEx from REVENUE, not net income. They're also assuming that non-recurring capital expeditures are irrelevant.

    Basically, it's a bogus number that even Enron would hesitate to publish.

  • Report this Comment On September 16, 2009, at 7:20 PM, gilsh wrote:

    the real question is whether social-networks are a temporary phenomena or something that is here to stay.

    With Amazon, or Google, a person can feel relatively safe - as the internet is here to stay.

    people will use amazon to buy stuff, as long as it will lead retail on the net.

    people will use google to search stuff or work on stuff, as long as it will lead these areas.

    and both AMZN and GOOG appear to do everything right, to stay ahead of the game.

    but social networks is a strange field. remember ICQ ? it used to be the one of the leading IM tools, and in practice, it was one of the hottest social networks back then, in pre-bubble times of 1999. now, a decade later, it is a mere 31 millions network.

    but why go so far in the past ? remember MySpace?

    in 2007 it was ranked number 5 among leading websites all over the net. now it is 11,

    (http://www.alexa.com/topsites) and not so long ago reports of downcuts in its workforce were reported.

    how are people going to interact using the web in another year ? in another decade ?

    considering google's and amazon's strong position and competitiveness, i'd wager they would be here in 10 years.

    considering the way facebook attempts to reinvent itself in the face of twitter, and the problems facing the social networks, once maturing, considering privacy issues and multi-age focal interests, i'd be very surprised not to see this field breaking up to a multitude of competing networks...

  • Report this Comment On September 19, 2009, at 11:59 AM, JMaberry wrote:

    Although I'll agree that it's too early in the ballgame to say for sure, personally I think social networking, and facebook along with it, is here to stay. As a teen, facebook user, and member of the generation it is most popular with, I can say without a doubt that (at least in my area) being a teen has become synonymous with having a facebook. It can still maintain tremendous growth potential, as there will always be increasing population. Social networking is such a great and simple tool for keeping in touch with people, I believe it has become an integral part of the internet and communication, and we can all agree that those aren't going anywhere.

    As far as MySpace sinking from the number 5 leading website to number 11, a large portion of that can probably be contributed to facebook's rise in popularity. Facebook is currently number 2 most visited website, behind google.

    Just my $0.02

  • Report this Comment On September 21, 2009, at 4:39 PM, apeacock2005 wrote:

    The death bell has started to ring for Facebook. My neighbors mom was yelling at her to not post any pictures of her drinking (she is in college) because her grandmother looks at her Facebook page. That is a kids clue to find a new "place" to hang out.

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