It's a problem most companies wish they had: What to do with $6.8-billion?
That's the amount of money Facebook is expected to raise upon the completion of its Initial public offering on Friday, when the social network's shares begin trading on the Nasdaq Stock Market. At an initial share price of $38 (U.S.), the offering would raise a total of $18.4-billion – much of that ending up in the hands of the company's private shareholders – and value the entirety of Facebook at about $104-billion.
Armed with billions in cash from its IPO – and under new pressure from investors to maintain its meteoric growth trajectory – Facebook will likely become one of Silicon Valley's most prolific shoppers.
"This is a space where acquisitions are the norm, not the exception," said Deloitte Canada analyst Duncan Stewart. "Buying eyeballs is something that's being done primarily through [mergers and acquisitions]"
Mr. Stewart said Facebook will probably use a portion of its new cash to hunt down acquisition targets that meet at least one of three criteria.
The first is any firm working on the fusion of mobile and social technology. Despite a user base of more than 900 million monthly active users and revenue that climbed to $1.1-billion in the first quarter of the year, from $731-million a year earlier, Facebook has had a lot of trouble making money off its mobile products. And since more and more users are accessing the social network from smartphones and tablets, generating profit from those users is perhaps the company's most pressing challenge.
The second is any company building advertising tools for the social Web. In recent weeks, some big-name companies have started questioning whether Facebook's ad network is an effective use of marketing dollars – this week, General Motors Co. opted to cut its $10-million annual spending on Facebook ads. A survey released Thursday by digital marketing firm Greenlight found that 44 per cent of respondents said they would never click on an ad on Facebook.
The third criterion includes any startup that has built a loyal following. Facebook's desire for such built-in user bases was evident last month, when the company bought social photography startup Instagram for $1-billion in cash and stock – in the process gaining access to some 30 million user accounts.
This month, Facebook followed up its Instagram acquisition with the purchase of Lightbox, which builds a photo app for smartphones that run on Google's Android operating system.
Forrester analyst Nate Elliott adds the social network needs to also focus on quickly expanding the way it makes money. In a note, Mr. Elliott said Facebook needs to use some of its IPO windfall to buy or build an ad exchange, similar to the one run by Google, so it can begin offering targeted advertising everywhere on the Web. Such a move would go a long way toward strengthening Facebook's revenue model, and allow it to use the massive stores of data it collects from its users outside the confines of the social network itself.
Facebook has been largely cryptic on how it intends to use the money from its IPO.
"We intend to use the net proceeds to us from our initial public offering for working capital and other general corporate purposes; however, we do not currently have any specific uses of the net proceeds planned," the company said in a regulatory filing.
Unlike other private companies that go public specifically to raise money, Facebook was largely forced onto the open market. As the company's list of private investors grew longer, it risked reaching a limit under U.S. law that would classify it as a public company regardless. As such, going public was less of a choice and more of a necessity.
But now that it has gone public, Facebook's new cash stockpile allows it not only to boost its rate of acquisitions, but also to spend money on less obvious but equally important concerns.
Given Facebook's ongoing battles with regulators around the globe, Mr. Elliott said he expects the company to begin spending heavily on lobbyists.
"One of the first things Google did after its IPO was to hire an army of lobbyists, and I expect Facebook to follow suit," he said.
"Expect lots of blue business cards floating around Brussels and Washington by the end of 2012."