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Facebook’s IPO issues

A lot of people are hyperventilating over Facebook Inc.’s coming initial public stock offering, a giant sale sure to rank among the biggest IPOs ever.

I wouldn’t say the same about Facebook founder Mark Zuckerberg. He has seemed almost reluctant about the social media giant’s plans to go public.

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The initial registration for a Facebook IPO - the first step that would probably lead to an actual stock sale by May or June - may be filed in the next few days. If not this week, soon.

The Facebook offering could raise as much as $10 billion and value the company at something between $75 billion and $100 billion, according to most forecasts. That would be much bigger - both in terms of money raised and company valuation - than Google Inc.’s initial stock offering in 2004.

There are billions of reasons for some people to be very excited. A crowd of employees with Facebook options will own easily tradable securities worth millions. Investment bankers will earn a pile of money. Venture capitalists who backed the company earlier will gain an important financial exit strategy. And many enthusiastic public investors will get their first opportunity to buy Facebook shares.

To the extent Zuckerberg has publicly discussed the Facebook IPO, he does not show the same kind of exuberance. A recent Wall Street Journal story based on an interview with the chief executive summed up his attitude this way: “If it were up to Mr. Zuckerberg, Facebook would remain private.’’

This is a healthy attitude. There is no compelling financial reason for the company to go public and a new level of investment scrutiny focused on quarter-by-quarter results can be become corrosive to longer-term business objectives.

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Facebook’s business generates lots of money - $1 billion or more a year by some estimates - and doesn’t necessarily need to swap equity for cash to fund expansion. The problem of employees focused on the company’s stock price - rather than its service - is common at newly public tech companies.

“You don’t want your engineers checking the stock price every 12 minutes,’’ says Peter Falvey, managing director of Morgan Keegan’s technology banking group. “Once you’re public, you have to make the numbers every 90 days till the end of time. What does that mean to a relatively new company?’’

The compelling reason for Facebook to go public is that the business and its investor base have grown too big to remain private. Most companies with 500 or more investors are required by law to register their securities, and this appears to be a big problem for Facebook. Besides, a public stock is a much better option for venture firms that eventually need to exit investments.

Facebook has grown so quickly - it boasts 800 million users - that it is easy to forget that Zuckerberg started the company in his Harvard University dorm in 2004. Unlike some other Internet social media companies, Facebook has figured out how to generate billions in revenues from its service and reportedly earns fat profit margins.

Facebook investment fans say the company has hired new talent and built a team that can keep the business humming through the distractions of public ownership. But Zuckerberg and that team will face real challenges.

First, Facebook will have to live up to some lofty valuation. The company’s shares might be valued at about 80 times earnings in an IPO, by some estimates. Google went public at a similar value and soon justified it by growing rapidly. Facebook would face the same challenge.

Zuckerberg, who turns 28 in May, will become a very young chief executive of a public company that may be valued on a par with McDonald’s Corp. That has to be a challenge.

Google’s two young founders hired experienced executive Eric Schmidt as their chief executive before the company went public. On the other hand, Jeff Bezos was a young CEO who stayed on to lead Amazon.com Inc. as a hugely successful public company.

Facebook has a lot going for it: a wildly successful service, a business model that turns popularity into profits, and talented managers. Explosive growth eventually made the company too big to remain private. Now Facebook will have to prove it can manage as well in a public world.

Steven Syre can be reached at syre@globe.com.

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