Facebook IPO Watchers Focus on $3.3B Social Media Ad Blitz

Facebook IPO prospects are closely watched by many investors, and for good reason.� Facebook makes a lot of money on ad sales, and is actually profitable � unlike previous tech busts that held IPO offerings before their first quarter in the black. What�s more, it is a dominant new media company, despite struggling under the leadership of founder Mark Zuckerberg. A little shareholder oversight and a lot of money raised from an initial public offering of Facebook stock could do wonders for this company.

After a report predicting a dramatic increase in ads for social media, many investors are more eager for a Facebook IPO than ever. Industry analyst eMarketer is predicting a 31% increase in spending on social network advertising before the end of 2010, some $3.3 billion compared to $2.5 billion in 2009. eMarketer also believes that a full 39% of that $3.3 billion will go exclusively to Facebook.

While talk of a Facebook IPO reached a fever pitch earlier this year, much was also made of Facebook taking control of the display ad market. At the end of the first quarter in 2010, comScore Ad Metrix published a report that placed Facebook as the overwhelming leader, controlling 16.2% of the display ad market, with Yahoo! Inc. (NASDAQ: YHOO) trailing behind with a 12.1% share, and other online advertisers Microsoft (NASDAQ: MSFT), Google (NASDAQ: GOOG), News Corp. (NASDAQ: NWS) property Fox Interactive, and floundering AOL (NYSE: AOL) each controlling a small percentage behind them.

These statistics are misleading though, because while advertisers with campaigns on Facebook reach a significantly larger audience than any other player in the display ad field, they aren’t spending a ton of money. Facebook’s advertising doesn’t make it the revenue behemoth it could be under other circumstance. As Nick O’Neill writes at AllFacebook.com, Google alone generates six times Facebook’s annual ad revenue every quarter — meaning that every two weeks, Google makes the social network’s entire annual revenue.

This is compelling evidence that supports CEO Zuckerberg’s decision to further delay a Facebook IPO. A Bloomberg report from the end of July, citing three individuals close to Zuckerberg, said that an offering most likely wouldn’t materialize until 2012. This would allow Facebook Inc. to both grow its user base and, more importantly, try to build relationships with advertisers seeking to spend dramatically more on reaching Facebook’s massive audience. The company will go public when it can better leverage its reach.

Until then, investors will just have to be patient.

As of this writing, Anthony Agnello did not own a position in any of the stocks named here.

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