Facebook prices at $38 in largest Internet IPO ever

The social network raises $16 billion. Trading is set to start at 11 a.m. and may be frenzied. But questions remain.

By Charley Blaine May 17, 2012 4:09PM
Updated: 9:30 a.m. ET Friday

Facebook, the social networking site that lets hundreds of millions of people trade messages, pictures and videos every day, raised $16 billion for its original stockholders and investors when 421.2 million shares were priced at $38 a share late Thursday. 


The price makes this the largest Internet IPO ever. It values the company at $104.1 billion, making Facebook the 40th-most-valuable company in the world, ahead of Amazon.com (AMZN) and Qualcomm (QCOM) but just behind PepsiCo (PEP). It makes founder and CEO Mark Zuckerberg worth $19.1 billion on the basis of his Facebook holdings alone -- at just age 28.

The pricing, which is what Facebook and selling shareholders will get for their shares, came as the U.S. stock market slumped in late-day trading Thursday, with the Dow Jones industrials ($INDU) closing down 156 points.

The pricing is the last step before the stock can be traded on U.S. financial markets. Trading in Facebook shares is expected to start at 11 a.m. ET Friday on the Nasdaq system with the ticker FB. What cannot be known with certainty is where the stock will open, much less where it will close. But look for a lot of volatility.

Investor interest in the stock is enormous. Many brokerages marketing shares stopped taking orders Wednesday. Road shows -- the presentations the company put on around the country to explain the stock to potential investors -- were packed affairs.

 

And as much attention was focused on Mark Zuckerberg's wardrobe as the Palo Alto, Calif., company itself. Zuckerbook appeared at his first event, in New York City, wearing his trademark hoodie.

Facebook's rise is one of those mythical American success stories. Zuckerman founded the company in 2004 while he was a student at Harvard. The name comes from the books colleges give incoming freshmen to help them identify their classmates.

The company grossed $382,000 that year. In 2011, revenue hit $3.7 billion, with net income reaching $1 billion, according to the company's prospectus. Its reach in the United States, Canada, Latin America and Europe is enormous. The company estimates 526 million people used the service every day as of March 31.

With success and a ridiculously visible IPO comes scrutiny. When the stock starts to trade on Friday, the debate will become more heated, especially if the stock really soars. At $50, John Cassidy of The New Yorker magazine noted Wednesday, the company would be worth nearly $137 billion. And after that, who knows?

Of course, Google (GOOG) went public at $85 a share in August 2004 and closed at $100 at the end of its first day of trading.

The debate over whether Facebook is worth $38 a share centers around several issues that won't be resolved for some time:

The valuation issue: At $38 a share and $1 billion in profit, Facebook is selling at 100 times trailing earnings. That's pricey.

At $628.93, Google's close on Wednesday, the shares were selling at 24 times trailing earnings and 14 times projected earnings.

Apple (AAPL) is selling at 13 times earnings and 10 times forward earnings.

The growth issue: As Facebook gets older, its revenue growth will necessarily shrink. It's shrinking already. 2011 revenue grew 88% over 2010 to $3.7 billion. In the first quarter of this year, the growth rate dropped to 33%.

The business-model quandary: About 85% of Facebook's revenue comes from advertising, and there's a question about whether the advertising works. With the Internet, advertisers think of it roughly in these terms: How many people click on an ad? How many of them actually buy something via the ad?

General Motors (GM), in fact, said it was going to stop buying ads on Facebook because the automaker didn't think the results justified the cost. GM has spent $10 million on ads on Facebook.

Rival Ford Motor (F) said it has generated plenty of leads via its advertising with Facebook.

There are two additional issues that will have to be resolved positively for Facebook's stock to thrive.

First, it needs to find a way to generate large gobs of revenue from its mobile traffic. Smartphones are generating roughly half of its traffic, but the advertising is modest at best.

Second, Asia is one of the biggest sources of growth. Ask Apple, which now gets 40% of revenue from China. But Facebook has a relatively small presence there and none in China.

277Comments
May 17, 2012 4:22PM
avatar
a fool and his money are soon parted facebook is nothing more than smoke and mirrors its no google it will not last here is the trend first aol instant messager, then friendster then bebo then xanga then myspace and now facebook the end result is still the same ... failure. When something new comes along bye bye facebook. Investors stand to lose billions as the facebook staff walk away high-fiving each other.
May 17, 2012 4:46PM
avatar
Now lets all dump facebook and see if we can crash the stock.
May 17, 2012 4:30PM
avatar

Wow.  Our education system has completely failed.

 

"Zuckerbook" appeared at his first event, in New York City, wearing his trademark hoodie."

"Zuckerman" founded the company in 2004 while he was a student at Harvard."

 

It's Zuckerberg.  Idiots.

May 17, 2012 4:56PM
avatar
NOT WORTH IT....NOT WORTH IT....NOT WORTH IT......When the original people behind it want to sell their shares ?????? what does your common sense tell you....Mine says...Keep yer money Folks!!!!!...it is like Myspace...big today....gone tomorrow
May 17, 2012 11:17PM
avatar
A Letter from Mark Zuckerberg
About Facebook’s IPO
 

MENLO PARK, CA. – On the eve of Facebook’s IPO, Founder and CEO Mark Zuckerberg published the following letter to potential investors:

Dear Potential Investor:

For years, you've wasted your time on Facebook.  Now here’s your chance to waste your money on it, too.

Tomorrow is Facebook’s IPO, and I know what some of you are thinking.  How will Facebook be any different from the dot-com bubble of the early 2000’s?

For one thing, those bad dot-com stocks were all speculation and hype, and weren’t based on real businesses.  Facebook, on the other hand, is based on a solid foundation of angry birds and imaginary sheep.

Second, Facebook is the most successful social network in the world, enabling millions to share information of no interest with people they barely know.

Third, every time someone clicks on a Facebook ad, Facebook makes money.  And while no one has ever done this on purpose, millions have done it by mistake while drunk.  We totally stole this idea from iTunes.

Finally, if you invest in Facebook, you’ll be far from alone.  As a result of using Facebook for the past few years, over 900 million people in the world have suffered mild to moderate brain damage, impairing their ability to make reasoned judgments.  These will be your fellow Facebook investors.

With your help, if all goes as planned tomorrow, Facebook’s IPO will net $100 billion.  To put that number in context, it would take JP Morgan four or five trades to lose that much money.

One last thing: what will, I, Mark Zuckerberg, do with the $18 billion I’m expected to earn from Facebook’s IPO?  Well, I’m considering buying Greece, but that would still leave me with $18 billion.  LOL.

Friend me,

Mark

May 17, 2012 6:06PM
avatar
Pretty disgusting that a company that doesn't produce or do anything worthwhile is worth more than huge established companies that actually create products and/or provide real services. 
May 17, 2012 5:00PM
avatar
Pre-sale hype hype hype. next week it will be worth 28 bucks.. Go ahead and buy...
May 17, 2012 4:54PM
avatar
Deactivated my account over a year ago and still I have contact with the people that are important to me!
May 17, 2012 4:53PM
avatar
Waiting for the new headlines to come out.  "Facebook IPO largest loss in Wall Street History".  How many underwriters are going to be requiring another government bailout from this one. 
May 17, 2012 5:40PM
avatar
Everybody on face book is mentally insane and has no life outside of viewing other people's lives and waiting for people to critique them on their life. Absolute Insanity. It is like a bad reality T.V show
May 17, 2012 10:11PM
avatar
I can't wait to see Facebook fall flat on its face. Which it will.
May 17, 2012 5:58PM
avatar
Really..... I mean REALLY. How can you value something at 104 BILLION that has NO LIQUID ASSETS!!!!! Well ok maybe at the most 3 to 5 Million. Thats all Facebook should be valued at. Anyone that invests in this is.... well all i can say is good luck and im glad you like throwing your money away. And if this hole scam works well say good buy to the market and the world ( well the world is messed up any way ) because stupidity has taken over.
May 17, 2012 11:09PM
avatar
In all reality facebook sucks.  It is just another fad.  Getting rid of it was awesome.  Mentally and physically I feel much better without it.  The quality of life has improved since I closed my account.
May 18, 2012 4:27AM
avatar
Alright people, I have something for you to think about... just work with me here.  It's pretty well known that Facebook makes its money from advertising, about 85% according to this article.  But how does this work exactly?  How are they selling it?  In a word- timeline.

Check it out.  Facebook is moving along nicely, everyone is happy telling the world what they're doing, where they are,  where they're going, where they've been, yada yada yada... everybody knows what everyone is doing.   Then one day, BAM!  Facebook decides to change to a cluttered and disfunctional timeline layout.  Pretty much all the users hate it. (I don't know a single person that likes it)  Facebook knows how unhappy the users are with it but do they change it?  No.  Do they give you the option of using the original format?  No.  Why is that?  Advertising.

Wrap your heads around this.  Everyone is telling everyone about their lifestyle- where they go, what they do, how they're spending their time and money.  Facebook sees this as an advertising tool so they create timeline.  Companies and businesses can now see trends- where people have been, what people have been there, and when they went.  There's so much info on Facebook and now it's all neat and tidy so the advertisers can see trends. 

Facebook doesn't care about it's users anymore.  It's changing from a social networking site to something different- a marketing company?  I don't know.  Facebook has sold out, and is now cashing out.  It's going to start going downhill because now it has to make market share and shareholders top priority.
avatar
Question for those buying "facebook".............what value does this extremely questionable, yet new and cutting edge........for the iota, medium have...............the second a slightly more advanced social networking medium is plopped into our laps.........when, not if, Apple or any one of 5000 other possible suppliers including european or chinese corps release it?

Answer...........POP, (bubble breaking on VIRTUAL business)!


May 17, 2012 9:28PM
avatar

This facebook offering may be one of the greatest heists of all time. The robbers don't even have to wear a mask, it's all legal.

May 17, 2012 6:10PM
avatar
It's funny one little company is worth so much money?, while our congress men and women have been meeting for over two year wasting millions of dollars and thousands of hours just to get $ 109 B worth of funds approved to get our roads and bridges fixed for the next two years!  still not getting the job done now it's two years past due.   
May 17, 2012 5:28PM
avatar
Facebook is for losers that dont have a life! 
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

ABOUT TECHBIZ

Start investing in technology companies with help from financial writers and experts who know the industry best. Learn what to look for in a technology company to make the right investment decisions.

RECENT POSTS

Facebook will tell you when friends are nearby

With its 'Nearby Friends' feature, the social media giant enters an already crowded and somewhat contentious space occupied by the likes of Foursquare and Tinder.

VIDEO ON MSN MONEY

RECENT QUOTES

WATCHLIST

Symbol
Last
Change
Shares
Quotes delayed at least 15 min

MSN MONEY'S