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  • Facebook IPO

    The company is on track to exceed $2 billion in earnings.

    Upstart: Gamechangers

    Facebook Inc.’s business is growing faster than it forecast several months ago, raising the stakes for an initial public offering as early as spring of next year, said people who have seen Facebook’s recent financial information.

    One of these people said the company is on track to exceed $2 billion in earnings before interest, taxes, depreciation and amortization, or Ebitda, in 2011. That is above the numbers from Facebook that circulated several months ago when Goldman Sachs Group Inc. and Russian investment firm Digital Sky Technologies invested in the closely held Internet company.

    This person wouldn’t say by how much Facebook might beat that earnings guidance.

    Goldman’s and Digital Sky Technologies’ investment reported early this year was at a share price that implied a $50 billion valuation for Facebook. The people familiar with the company’s recent finances said they thought its profit was growing at a fast-enough clip to justify a valuation of $100 billion or more when it goes public.

    That would make Facebook one of the largest technology companies, and eclipsing Amazon.com Inc. and Cisco Systems Inc., among others.

    Those citing this big number cautioned that assessing Facebook’s value is difficult because, besides objective matters such as earnings potential, much depends on market sentiment and the overall economic mood at the time of a public offering.

    There is scant public information on Facebook’s financials. Given that, some venture capitalists, investors and bankers privately express surprise at what they perceive as astronomical valuations.

    The valuation frenzy was particularly triggered by the $1.5 billion investment from Goldman and Digital Sky Technologies. Since then, investors have competed to buy shares of the still-private company on the secondary market. On that market, Facebook valuations have fluctuated wildly, but have recently traded at around $70 billion.

    A spokesman for the Palo Alto, Calif., company said, “We’re not going to participate in IPO-related speculation.”

    Facebook has yet to set a schedule or target price for its IPO with banks, although many large banks are in contact with the company about providing a host of investment-banking services.

    Facebook’s accelerating financial momentum is another sign of how the seven-year-old social network, run by founder and Chief Executive Mark Zuckerberg, is affecting online businesses such as advertising. Facebook has more than 600 million users, who frequently share photos, Web links and tastes—stoking advertisers to try to claim a slice of the online conversation.

    The company has grown organically, not only selling advertising but developing its own payments system, called Credits, which people use to pay for things on the site. Facebook also could step up its growth through deal making because, should it need financing, the company has ready access to $1 billion in bank credit, according to people familiar with the matter.

    EMarketer estimates Facebook will have ad revenue this year of $4.05 billion, up from $1.86 billion last year.

    Wedbush Securities Inc. analyst Lou Kerner said Facebook warrants a bullish view because it is eventually going to take a much larger share of the Internet ad market, while its other lines of business are poised to grow quickly.

    He pegged Facebook’s profit margin—in earnings before interest, taxes, depreciation and amortization—at about 50%. He said Ebitda should be $1.95 billion this year, and he estimated the company’s value in the public market would be $112.9 billion.

    “Part of our bullishness for Facebook is our belief that it is still in the embryonic stages of advertising,” Mr. Kerner said.
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