Facebook files IPO papers. The valuation of the company could be as high as USD 77-96bn, implying USD 28-35 per share. Facebook aims to sell 337mn shares, nearly half of which are primary ones, on 18 May.
Facebook's high-end IPO valuation range creates upside risks to our SOTP valuation for Mail.ru Group (Buy, TP of USD 55). The company acquired 2.38% in Facebook in 2009-10. In our sum-of-the-parts valuation for Mail.ru (the owner of Russia's #2 and #3 social networks OK and MyWorld, and 40%-owner in Russia's largest SNS VK), we use a value of USD 87.7bn (2011-1Q12 OTC market transaction average) to estimate Facebook's impact, which accounts for 20% of our SOTP valuation. This equates to the mid-point of Facebook's pre-IPO valuation range of USD 77-96bn. The valuation implies 2011 EV/EBITDA of 32-41x and 2012F EV/EBITDA of 27- 34x (assuming 20% YoY growth in FY12 EBITDA) for Facebook. By way of comparison, we note Mail.ru Group's 2012F EV/EBITDA of 14.3x.
Mail.ru may sell 11.27mn shares (22% of its shares in Facebook) ending up with a 1.5% stake in the global SNS; might raise USD 316-394mn at IPO. We also believe the IPO could: i) be a trigger for Mail.ru's stock performance; ii) as Mail.ru's 26% free-float is partly spread out among non-Russia dedicated funds, the latter may start exiting the stock to gain direct exposure to the largest global SNS story; iii) Mail.ru Group's still attractive valuation might attract new investors. The company might spend the cash on M&A, and increasing the 40% stake it already holds in Vkontakte (VK), Russia's #1 social network, to a controlling one might be a key target, in our view. This would allow Mail.ru Group, which already is uniquely positioned on the Russian market via the two largest local SNSs, to benefit from consolidation and broadening in this segment.
In 1Q12, FB's revenues rose 45% YoY, EBITDA was up 12%YoY while 1Q12 earnings fell 12% YoY (vs. +88% to USD 3.7bn, +78% to USD 2.079bn and 65% YoY to USD 1bn, respectively, in 2011). While Facebook still derives the lion's share of its top line from online ads (89%), IVAS revenues (virtual gifts, revenue stream from SNS applications and social games) are catching up, and accounted for about 11% of the 2011 top line (up from 7% in 2010). As of March 2012, Facebook had 901mn monthly active users or 526mn daily ones, up 44% and 41% YoY, respectively, while in October it had some 13.4mn monthly users in Russia (the Russian interface was launched in June 2008). The key stakeholders in the company are Mark Zuckerberg, the co-founder and CEO (28%); Facebook employees and management (about one third).