Facebook aims to raise about $10.6 billion in Silicon Valley’s largest IPO.
The eight-year-old social network that began as Mark Zuckerberg’s Harvard dorm room project indicated an initial public offering price range of between $28 and $35 a share, which would value the company at $77 billion to $96 billion.
At the top end of the IPO range, Facebook would rival the market value of Amazon.com and Cisco, which are worth just over $100 billion, and surpass the combined market value of older technology companies HP and Dell.
The size of the IPO reflects the company’s growth and bullish expectations about its money-making potential as a hub for everything from advertising to commerce.
“We certainly haven’t ever seen a tech IPO on this grandiose a scale,” said Lise Buyer, a principal with the IPO advisory firm Class V Group.
We certainly haven’t ever seen a tech IPO on this grandiose a scale
Buyer, who worked on Google’s 2004 IPO, said the question about a company “that’s already this big and that is raising this much money is how many of the glory days of growth are in the past versus how many are ahead”.
Facebook stands to raise as much as $12 billion at the upper end of its planned range. If an over-allotment or “greenshoe” option is triggered, the company could sweep up a maximum of $13.6 billion, according to a prospectus.
Facebook is only getting about half, or $5.6 billion, of the estimated $10.6 billion that it would raise at the midpoint of its planned IPO range. About $4.9 billon will go to some existing shareholders.
Among existing shareholders, the largest seller in the IPO will be venture capital firm Accel Partners, which will make about $1.2 billion assuming the shares sell at the $31.5 mid-point. Zuckerberg is selling the next largest chunk of shares, worth a little under $1 billion.
Road show
Facebook’s stock could begin trading as soon as 18 May, according to a road show schedule obtained by Reuters.
Investors are expected to flock to the highly anticipated IPO, although there have been growing concerns about the social network’s longer-term growth and Zuckerberg’s majority control.
Facebook will trade at 13 to 16 times the revenue that GreenCrest Capital analyst Max Wolff believes it will generate this year. By comparison, Google currently trades at 5.5 to six times expected 2012 revenue, he said.
Google’s valuation was higher when it went public in 2004, though Facebook’s IPO valuation is still higher than Google’s was back then, Wolff noted.
But some observers said the rich premium was unlikely to deter investors. “People are going to be very comfortable with this valuation,” said Sam Schwerin of Millennium Technology Value Partners, which owns Facebook shares worth roughly $200 million. The firm is not selling in the IPO.
Last week, Facebook reported its first quarter-to-quarter revenue slide in at least two years, a sign that the social network’s sizzling growth may be cooling just as it prepares to go public. Some observers have also flagged the company’s lack of revenue on mobile devices such as smartphones as an area of concern.
Facebook generated the lion’s share of its $3.7 billion in revenue last year from online advertising.
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