Facebook | How Should Facebook Use $10 Billion In IPO Cash?

Facebook Inc.’s cash box is about to get a lot heavier. The social-networking company’s planned initial public offering of shares won’t just create a new stock-market heavyweight. The IPO also will infuse Facebook with as much as $10 billion in cash, creating the fascinating challenge of what to do with all that money.

Let’s consider Facebook’s options. The simplest short-term choice is to do nothing. Lots of other successful tech companies sit on enormous stockpiles of cash ” generated from their highly profitable operations ” without feeling any immediate pressure to spend down the money. Apple Inc. has a huge cash hoard. So does Microsoft Inc. In such situations, investors eventually badger management for partial returns of cash via dividends. But that dynamic can take many years to play out.

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A second possibility is to expand the business organically, hiring more engineers, opening more offices around the world, and building up infrastructure. Facebook surely will do a lot of that. But its Internet-based business is hardly as capital-intensive as, say, making cars or microchips. Facebook takes pride in how lean its engineering force can be, while still serving more than 800 million users. Even a robust internal expansion isn’t likely to do more than absorb the cash flow already being generated by Facebook’s booming advertising business.

The gung-ho alternative can be summed up in one word: acquisitions. Facebook in the past two years has bought more than a dozen small Internet companies, snapping up the likes of Chai Labs, HotPotato, Beluga and MailRank. In most cases, Facebook has been more interested in harnessing the talents of a few key engineers than in keeping those businesses running in their current form. Facebook certainly could keep marching ahead with such deals, expanding its prowess in areas such as mobile and security. But even a nonstop parade of $10 million deals wouldn’t make much of a