Facebook is generating profits at a faster-than-expected rate, and will likely attract so many investors this year that it will have to disclose financial data similar to a publicly traded company by April 2012, according to a document distributed by Goldman Sachs.
The move could set the stage for a much-anticipated Facebook initial public offering in 2012, though there is no guarantee that the social networking company would choose to sell shares to the public simply because it is required to open its books to the public.
Facebook, the world's No. 1 Internet social network, earned $355 million in net income in the first nine months of 2010 on revenue of $1.2 billion, according to a source who received the documents that Goldman Sachs provided to its clients on Thursday.
Goldman began hand-delivering copies of the 101-page private placement memorandum for a $1.5 billion Facebook offering to its wealthy customers a little after lunchtime in New York, according to the source.
The Goldman customer said he received a separate six-page financial statement containing information on the social networking company.
The document provides some of the most detailed financial information yet about Facebook, which Goldman recently valued at $50 billion in a separate, $450 million funding.
That valuation is high, but not outrageous based on the glimpse into the company's financial performance and the growth that it implies, said Ryan Jacob, of the Jacob Internet Fund.
It just shows you that these businesses can generate 30 percent to 40 percent, potentially, operating margins, he said. They probably did at least $500 million in net income in 2010.
Wedbush Securities analyst Lou Kerner, who owns Facebook shares, said, The revenue kind of are in line with our expectations.
The surprise was on the profitability. I think it highlights that Facebook is likely to have margins that are going to exceed Google's margins, he said.
The memo said Facebook is likely to have more than 500 shareholders this year, according to another person who reviewed the documents, and that the company may begin filing public reports of its financial performance by April 2012.
THE BIG 500
United States securities regulations require companies with more than 499 shareholders to disclose financial information.
Facebook, which was founded in a Harvard dorm room in 2004, has more than 500 million users and is challenging big Web businesses like Google Inc and Yahoo Inc for users' time online and for advertising dollars.
This year you could make the case that they're probably going to be north of $800 million and probably close to a billion, said Jacob of the Jacob Internet Fund in reference to the company's net income.
The financial statements circulated on Thursday were not audited and offered little detail about how Facebook generates it revenue, said the Goldman customer, who did not want to be identified because he had signed a non-disclosure agreement.
Investors are increasingly eager to buy shares of Facebook and other fast-growing Internet social networking companies on private exchanges.
The Goldman memo notes that the firm has received inquiries from regulators about the private offering of Facebook shares, according to the New York Times.
Facebook declined to comment on the report.
Goldman customers seeking to buy shares in the privately held Facebook will invest money in a newly formed Delaware entity called FBDC Investors LP, according to the Goldman customer.
Corporate records show that FBDC Investors was incorporated in Delaware on January 5.
Goldman customers have until Friday to commit to investing in the new entity and until next Tuesday to wire money to the Wall Street firm.
Goldman, which is investing $450 million of its own capital in Facebook, is raising at least $1.5 billion from its wealthy customers through the limited-time offering, sources have said.
(Additional reporting by Joseph Giannone in New York. Editing by Robert MacMillan and Carol Bishopric)