There's a delicate art in working out when it is best to IPO a company. There are a number of different factors which will influence the price or valuation of the company. And according to one way of looking at these it's possible that Facebook has got the calculations slightly wrong, that it has peaked too soon.
Facebook's share of UK social networking declines
Facebook usage in the UK has fallen by more than seven percentage points in the last year, fuelling concerns that it may have hit saturation point.
Do note that these are only UK figures and thus may or may not be representative of other markets.
The sites actually increasing their market share were Google's You Tube, Twitter and Yahoo's Answers. The latter two were so small in total audience (a couple of percentage points each) as to not really be relevant. Google +, Google's direct competitor to Facebook, didn't make the top 10 sites by this method of measurement.
Which brings us back to Facebook and that eagerly anticipated IPO. When exactly, should you try to capitalise upon the value of the company? While you are still growing quickly? That will certainly give you a high multiple of earnings for the share valuation.
But going too early risks leaving too much money in the hands of the new investors, not enough in those of the old. Or instead, should you wait until you're a mature business? That is, not even ask to be rated upon growth prospects but just point to the vast cashflow and the profits that are associated with them? You'll not get a high rating for the stock that way but the total enterprise value might still be higher.
It's all rather complicated, at what stage of the company's development is it best to start cashing in on the value that has been created? About the only thing you don't want to be doing is going ex-growth before you've created the vast cashflows and profits. Which, disturbingly, is what might be happening at Facebook.
We don't really know as yet, all we've got are little snippets of information here and there. It's going to be very interesting reading the IPO prospectus as and when (even if) it comes out.
