Facebook set for debut after IPO seals $104 billion value

May 18 (Bloomberg) -- Facebook Inc. is set to start trading today after a record initial public offering that made the social network more costly than almost every company in the Standard & Poor’s 500 Index.

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., 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.

Bigger Than GM

GM raised $15.8 billion in November 2010, before expanding the sale to $18.1 billion when underwriters exercised the over- allotment option. Visa Inc. raised $17.9 billion in its 2008 IPO, the biggest in the U.S., and later expanded the sale to $19.7 billion.

Facebook’s offering price gives it a market capitalization almost double the $60 billion United Parcel Service Inc., previously the biggest company to complete an IPO, was valued at when it went public in 1999, according to data compiled by Bloomberg and Dealogic.

Facebook stock is scheduled to start trading today at 11 a.m. New York time on the Nasdaq Stock Market, under the symbol FB. The social network is the first company to complete a U.S. IPO in a week, after vacuum-pump maker Edwards Group Ltd. raised $100 million on May 10.

The 67 companies that completed U.S. IPOs this year before Facebook gained an average of 7.2 percent in public trading through yesterday, data compiled by Bloomberg show. Six of the 10 best-performing newly listed U.S. stocks this year are Internet or technology companies, led by Guidewire Software Inc., the provider of software to the insurance industry that gained 95 percent through yesterday.

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