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Facebook Appeases FTC Ahead of $100 Billion IPO Gambit

Posted by Sheila Shayon on November 29, 2011 05:37 PM

It’s only fitting that the world’s dominant social network will reportedly go public in the second quarter of 2012 in what could be the largest IPO by any technology or Internet company in history. Facebook hopes to raise $10 billion through a limited IPO that would value the company at an astounding $100 billion.

Of the thirteen IPOs completed at a value higher than $10 billion, three are U.S. companies according to Dealogic: Visa at $19.7 billion in 2008; General Motors at $18.1 billion in 2010; and AT&T Wireless Services Inc. at $10.6 billion in 2000. The largest U.S. Internet IPO to date was the $1.9 billion offering of Google shares in 2004, which valued Google at $23 billion.

Facebook will cross the 500-shareholder limit within the next month, triggering SEC requirement to publically disclose financial information by April. While 2011 saw promising debuts of online brands like Groupon and Pandora, maintaining those leads has underwhelmed expectations.

Groupon closed its first day of trading at a $16.5 billion valuation but has lost 40% of its value since early November and is now valued at about $10 billion. Pandora debuted at $16 per share, but has sunk to $10.15 per share, and LinkedIn, despite its stock more than doubling from its IPO price on its first day of trading May 19, has fallen 36%.

 Zynga, the largest social gaming company with 227 million monthly users and $828.9 million in revenue in the first nine months of 2011, is reportedly readying its initial public offering for as soon as next Monday.

The Zynga offering will be a test balloon for the well-being of the current I.P.O. market. “Zynga’s performance will also weigh on the outlook for Facebook…As the largest gaming company on Facebook, Zynga is a major contributor to Facebook’s revenue. The company purchases advertising on the site and shares a portion of virtual good purchases with the social network,” notes the New York Times.

In typical Zuckerberg behavior, Facebook is drawing up its own prospectus, reports the Wall Street Journal, with CFO David Ebersman leading discussions with Silicon Valley and Wall Street bankers.

The WSJ further notes, “Facebook remains elusive about a commitment to specific banks, even though an IPO looms. Mr. Ebersman told some bankers that he is skeptical over what contribution investment banks could make to a Facebook IPO, since the company is so highly sought after by major investors.”

Brands continue to jump on the Facebook bandwagon and with their global ad revenue projected to hit $3.8 billion this year, according to eMarketer, the social network defining the digital space will accrue a 16.3% of display ad revenue this year and 19.5% in 2012. 

What remains to be seen is if Facebook will maintain its preeminence when its inner operations are transparent, its actions legally bound to stockholders and investors, and that man behind the curtain suddenly open to public scrutiny.

To that point, Facebook and the FTC just reached a settlement about the commission's privacy concerns, even though the EU is considering banning Facebook from selling ads based on demographic information culled from user profiles and activity. (As Gawker points out, two former FTC commissioners now work for Facebook.)

The FTC, in a press release titled "Facebook Settles FTC Charges That It Deceived Consumers By Failing To Keep Privacy Promises," commented:

The proposed settlement requires Facebook to take several steps to make sure it lives up to its promises in the future, including giving consumers clear and prominent notice and obtaining consumers' express consent before their information is shared beyond the privacy settings they have established. The FTC's eight-count complaint against Facebook is part of the agency's ongoing effort to make sure companies live up to the privacy promises they make to American consumers. It charges that the claims that Facebook made were unfair and deceptive, and violated federal law. "Facebook is obligated to keep the promises about privacy that it makes to its hundreds of millions of users," said Jon Leibowitz, Chairman of the FTC. "Facebook's innovation does not have to come at the expense of consumer privacy. The FTC action will ensure it will not."

Or as the FTC's blog summarized its agreement with Facebook, "Where did the company go wrong? The agency’s 8-count complaint boils down to this: Facebook’s privacy practices often flew in the face of its stated policies and, as one count alleges, the company made material retroactive changes to its privacy practices, without getting users’ consent."

Facebook CEO Mark Zuckerberg — who would be worth $24 billion if FB's IPO succeeds at valuing the company at $100 billion — commented in his own blog post, titled "Our Commitment to the Facebook Community":

Even before the agreement announced by the FTC today, Facebook had already proactively addressed many of the concerns the FTC raised. For example, their complaint to us mentioned our Verified Apps Program, which we canceled almost two years ago in December 2009. The same complaint also mentions cases where advertisers inadvertently received the ID numbers of some users in referrer URLs. We fixed that problem over a year ago in May 2010.

In addition to these product changes, the FTC also recommended improvements to our internal processes. We've embraced these ideas, too, by agreeing to improve and formalize the way we do privacy review as part of our ongoing product development process. As part of this, we will establish a biannual independent audit of our privacy practices to ensure we're living up to the commitments we make.

Even further, effective today I am creating two new corporate officer roles to make sure our commitments will be reflected in what we do internally -- in the development of our products and the security of our systems -- and externally -- in the way we work collaboratively with regulators, government agencies and privacy groups from around the world:

- Erin Egan will become Chief Privacy Officer, Policy. Erin recently joined Facebook after serving as a partner and co-chair of the global privacy and data security practice of Covington & Burling, the respected international law firm. Throughout her career, Erin has been deeply involved in legislative and regulatory efforts to address privacy, data security, spam, spyware and other consumer protection issues. Erin will lead our engagement in the global public discourse and debate about online privacy and ensure that feedback from regulators, legislators, experts and academics from around the world is incorporated into Facebook's practices and policies.

- Michael Richter will become Chief Privacy Officer, Products. Michael is currently Facebook's Chief Privacy Counsel on our legal team. In his new role, Michael will join our product organization to expand, improve and formalize our existing program of internal privacy review. He and his team will work to ensure that our principles of user control, privacy by design and transparency are integrated consistently into both Facebook's product development process and our products themselves. These two positions will further strengthen the processes that ensure that privacy control is built into our products and policies. I'm proud to have two such strong individuals with so much privacy expertise serving in these roles.

These two positions will further strengthen the processes that ensure that privacy control is built into our products and policies. I'm proud to have two such strong individuals with so much privacy expertise serving in these roles.

Today's announcement formalizes our commitment to providing you with control over your privacy and sharing -- and it also provides protection to ensure that your information is only shared in the way you intend. As the founder and CEO of Facebook, I look forward to working with the Commission as we implement this agreement. It is my hope that this agreement makes it clear that Facebook is the leader when it comes to offering people control over the information they share online.

Finally, I also want to reaffirm the commitment I made when I first launched Facebook. We will serve you as best we can and work every day to provide you with the best tools for you to share with each other and the world. We will continue to improve the service, build new ways for you to share and offer new ways to protect you and your information better than any other company in the world.

Facebook's new privacy roles follow Twitter's acquisition of WhisperSystems, which created privacy tools used by social activists in London and beyond.

Comments

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December 6, 2011 04:48 PM #

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