The future face of Facebook poses Web's latest billion-dollar question

Four years ago, technology and financial markets were gripped by a great frenzy sparked by rumours that a certain Web giant was about to launch an initial public offering of stock.

We all know how that movie ended: Despite being surrounded by skepticism (and a dash of controversy), Google's IPO was a blockbuster, and the company's market value has increased more than sixfold to the point where it is now worth about $165-billion (U.S.).

Fast-forward to today, and there is growing speculation (or hope) that another young technology company could be headed for a public offering: namely, everybody's new best friend, Facebook. So far, there are just hints and whispers, which likely got started when Facebook reportedly turned down a cash offer of $1-billion from Yahoo last year. Although some assumed the site was holding out for a better offer, others took it as a sign Facebook was determined to do an IPO.

Since then, the rapidly growing company has made several moves - including executive appointments - that suggest it has its eye on a larger future, and possibly a publicly traded one.

Not long after the Yahoo offer, Facebook raised $25-million from a group of funds led by Greylock Partners, along with Accel Partners and a fund run by Peter Thiel (the former CEO of PayPal). Companies rarely raise money if they are in talks to be acquired.

More recently, Facebook hired Chamath Palihapitiya as its chief marketing officer. Mr. Palihapitiya - who was raised in Canada and has a degree in engineering from the University of Waterloo - was a venture capitalist with Mayfield Fund, and before that held a series of positions with America Online.

Mr. Palihapitiya joins two other senior technology executives on the Facebook team: chief operating officer Owen Van Natta is the former vice-president of worldwide business and corporate development at Amazon.com, and vice-president of strategy Matt Cohler used to be the head of business development at LinkedIn, a corporate social-networking company.

Those who have been reading the tea leaves on a potential IPO also took note of a job posting that recently went up at Facebook: It says the company is looking for an "experienced stock administration manager" - a job that would include dealing with stock option plans and insider trading.

While such a position might theoretically be necessary inside a large privately held company, many observers said it was another sign that Facebook was starting to gear up for a stock offering.

The billion-dollar question, of course, is how much Facebook might be worth if it should ever go public. According to several estimates, the company's revenue this year will likely be between $100-million and $150-million, and that figure is still said to be growing rapidly.

The site has seen its user base grow by more than 85 per cent in the past six months, according to estimates from comScore. More than 80 per cent of users are also described as "active," in that they check their account at least once a week, and the site gets 1.5 billion page views a day.

According to at least one estimate, a revenue level of $150-million with a growth rate of more than 50 per cent could justify a market value as high as $3.5-billion, depending on the company's profit margins. News Corp. executives have said that MySpace - Facebook's closest competitor - is now worth about $6-billion, although it has more users and higher revenue.

According to leaked documents from Yahoo, the Internet company had prepared spreadsheets during its takeover offer that projected the social-networking service could generate annual revenue of more than $600-million by 2009 and free cash flow of more than $350-million.

Whether Facebook's growth is sustainable remains to be seen. Other fast-growing social networks have flamed out - Friendster being the most well-known. Facebook appears to be trying hard to increase its usefulness by becoming a platform for other companies who want to reach its 25 million users, but those efforts may or may not pay off.

Will Facebook become a Google-like stock market meteor? Perhaps. If it doesn't, Mark Zuckerberg and his financial backers may rue the day that they turned down Yahoo's $1-billion takeover bid.