Facebook sold 421.2 million shares at $38 each to raise $16 billion, a statement yesterday shows. That values the Menlo Park, California-based company at $104.2 billion, or 107 times trailing 12-month earnings, more than every S&P 500 member except Amazon.com Inc. and Equity Residential.
That valuation also makes Facebook, co-founded in 2004 by a then-teenage Mark Zuckerberg, the largest company to go public in the U.S. Now the 28-year-old billionaire has to reward investors by squeezing more profit out of advertising, said Erik Gordon, a professor at the University of Michigan’s Ross School of Business.
“It shows tremendous confidence in the guy wearing the hoodie,” said Gordon, referring to Zuckerberg and the signature sweatshirt he wore during meetings to market the stock. “He hasn’t specified how he’s going to do it, but he’ll have to do it to justify this price.”
In less than a decade, Zuckerberg has overseen Facebook’s evolution from a Harvard University dorm-room project into a social network with more than 900 million users. Still, revenue growth is poised to slow for a third straight year and advertising sales haven’t kept pace with user additions.
26 Times Sales
Facebook, which priced at the top end of its range of $34 to $38 a share, is making its public debut at a valuation of about 26 times sales in the 12 months through March 31. That’s more than twice as much as AvalonBay Communities Inc. (AVB), currently the most costly company by that measure in the S&P 500.
“It seems like a very full valuation, but I’m sure there was an almost insatiable amount of retail interest in Facebook and that’s how the bankers looked at it,” said Dan Veru, chief investment officer at Palisade Capital Management in Fort Lee, New Jersey. “Everyone wants a piece of Facebook.”
At $16 billion, Facebook’s debut surpasses that of General Motors Co., making it the second-largest in U.S. history, excluding so-called over-allotments, which let underwriters buy more shares at a later date, data compiled by Bloomberg show.
Facebook is set to raise the roof off Wall Street with its upcoming initial public offering, which has a target valuation on the social-media giant as high as $104 billion.
To see where Facebook’s IPO stands now, here are some questions and answers with updates as they happen.
When will the IPO take place?
It’s Friday, May 18. The stock will start trading 11 am EST, with a price of $38 per share (see more below).
Expected to raise some $16 billion, it’s the largest Internet IPO in the U.S. and the third largest ever—behind Visa [V 114.409 -0.601 (-0.52%) ] in 2008 and Italian firm Enel SPA in 1999.
Some 421 million shares of Facebook [FB 38.00 — UNCH ] will be offered at the opening.
Twenty-eight year old CEO Mark Zuckerberg rang the Nasdaq opening bellremotely from Facebook’s Menlo Park, California headquarters on Friday. He’s got a lot to ring in. His reported take from the IPO is said to be some $19.1 billion.
To get investors interested, Facebook’s roadshow began on May 7 at Morgan Stanley to some ‘mixed reviews.’
But Facebook changed its pitch: A 30-minute video was scrapped and the company took more questions from analysts and potential investors. That was a big complaint during the New York City presentation—not enough time for Q & A.
But reports say the newer presentation went over much better. The roadshow drew crowds of investors from coast to coast.