Thursday, May 17, 2012

Facebook prices shares at $38, raises $16B in IPO

It's official now. Facebook has announced the pricing of its IPO (for those who can get into the IPO, not the general public). The price is on the high end of the expected range, at $38.

In addition, since the 337.4 million shares Facebook had planned to offer was oversubscribed, Facebook has increased the number of shares in its IPO to 421.2 million shares, which values Facebook at $104.2 million, making it the largest company to go public in the U.S., by market capitalization.

Arvind Bhatia, an analyst with Sterne, Agee & Leach Inc. in Dallas said, “My feeling is they could have gone higher [in terms of a price], but they wanted to leave some room for upside tomorrow. The demand was obviously quite strong, so I think it’s the right move.”

Odds are the stock price will spike as the public gets a chance to buy the stock. The stock markets will open at 6:30 a.m. PDT, 9:30 a.m. EDT on Friday. The stock will start trading tomorrow on the NASDAQ Stock Market under the symbol FB.

Facebook CEO Mark Zuckerberg will ring the NASDAQ bell, remotely, from Facebook's Menlo Park company HQ.

The Facebook IPO will raise $16 billion for the company. That places the Facebook IPO as the second-largest in U.S. history. Visa raised $17.9 billion in its 2008 IPO, which is the biggest in U.S. history, and later expanded the sale to $19.7 billion using over-allotments, which allow underwriters to buy more shares at a later date. Just behind Facebook is GM, which raised $15.8 billion in November 2010, before expanding the sale to $18.1 billion with over-allotments.

Facebook's valuation at the IPO price will be 26x sales in the 12 months through March 31 and about 107x earnings. That makes Facebook shares more expensive than every single member of the S&P 500 Index by sales, and more expensive than all but two by earnings.

Still, is that really that expensive? Early this week, Apple co-founder Steve Wozniak said he would invest in Facebook, no matter what the price.

However, that self-same aforementioned GM cast a pall over these proceedings. GM announced earlier this week that it was pulling its $10 million Facebook ad campaign, a decision that has many left wondering how effective advertising on Facebook is, which translates into how good the long-term prospects for the company are.

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