Facebook sets bar high for huge IPO

Posted:   05/17/2012 04:17:54 PM PDT

May 18, 2012 4:17 AM GMTUpdated:   05/17/2012 09:17:37 PM PDT

After months of anticipation, Facebook on Thursday set the share price for its first public stock offering at $38 as the social networking giant made final preparations for a record-breaking market debut Friday.

At that price, the planned stock sale is expected to raise $18.4 billion for the company and some early investors, making it the second-biggest offering of any U.S. company in history in terms of dollars raised, behind Visa's $19.6 billion debut in 2008.
More significantly, the price sets a total value for Facebook at $104 billion, giving it a greater worth than any other U.S. company at its stock market debut.

n the world have debuted with market values higher than Facebook's, according to data-tracking firm Dealogic; both of them were Chinese banks. Facebook's IPO involves only a small portion of its estimated 2.74 billion shares outstanding, which are held by a combination of investors and insiders -- including co-founder and CEO Mark Zuckerberg.

"There's no question: It's a lot of money. It's evidence that entrepreneurs in the United States have been able to create extraordinary value with creative thinking," said Larry Harris, a professor of finance and business economics at USC's Marshall School of Business.

Public trading of Facebook stock is set to begin about 8 a.m. Pacific time Friday on the Nasdaq exchange under the symbol FB.

To kick things off, the company is holding an official all-night "hackathon" starting Thursday evening at Facebook headquarters in Menlo Park, where employees will be free to work on any project that interests them. Facebook, which takes pride in its programming ethos, has held 30 similar all-night coding events since 2007.
Early interest in the new stock was so feverish that Facebook this week raised the potential range of its IPO price, which was originally listed as $28 to $35. At the final price of $38, most of the shares sold in the IPO went to institutional funds and other big clients of the IPO's underwriters.
Now the question for many in the tech industry and on Wall Street will be how much the price rises in open trading.
"Given the demand that they had, it doesn't take a genius to predict the stock is likely to have a pretty good day," said Sterne Agee analyst Arvind Bhatia. "How high does it go? It's hard to tell."
Deciding just where to price the stock is "a little bit of a fine dance," said one person close to Facebook who has taken companies public in the past. If there is a huge run-up once the stock begins trading

publicly, that suggests the price was set too low and the company left millions of dollars on the table.

But if the IPO price is too high, there may be less potential for a "pop" from public investors, which companies generally see as a badge of honor. "The targeted pop is 15 to 20 percent," the Facebook insider said.
Several smaller social networking companies saw their stocks dip Thursday, including LinkedIn, Jive and Yelp. Analysts said that may be a result of a broader market decline, although some suggested investors may be freeing up funds to buy Facebook instead.
Some investment advisers have warned that opening-day exuberance could push Facebook shares to unsustainable heights.
Facebook has grown rapidly and boasts more than 900 million users worldwide. But the company, which reported $1 billion in profit last year on revenue of $3.7 billion, still faces many challenges. Analysts say its revenue growth has slowed and it has yet to show it can make money from the growing number of users who access Facebook's mobile app on smartphones and other gadgets.
Facebook decided this week to increase the number of shares it planned to sell through the underwriters of its IPO, after demand for the stock outstripped supply. Those additional shares came not from the company but from early investors, including PayPal co-founder Peter Thiel and venture capital firm Accel Partners,

The IPO will raise $6.8 billion for the company, which is selling 180 million shares. Early investors and Zuckerberg will reap an additional $9.2 billion by selling 241.2 million shares.
Facebook and its investors are expected to raise a further $2.4 billion from 63 million shares that have been set aside in an "over-allotment," a cache of stock to be sold if subsequent demand warrants. That would bring the total value of the IPO to $18.4 billion.
Among U.S. companies, that's second only to Visa, which raised $17.8 billion worth of shares in its IPO four years ago and hit $19.6 billion after its over-allotment was sold, according to figures from Dealogic and from Renaissance Capital, another firm that tracks IPO data.
But the IPO price pushes Facebook past the previous record for a U.S. company's total value at the time of its stock market debut. That record was held by United Parcel Service, which was valued at $60 billion at the time of its 1999 stock debut.
Facebook's $104 billion market value makes it one of the largest companies in the nation. By comparison, Apple (AAPL) is now worth slightly less than $500 billion, and Google (GOOG) is worth more than $200 billion. Hewlett-Packard (HPQ), an older company that has struggled with changing technology markets, is valued at slightly more than $43 billion.