How does Facebook measure up to past IPOs?

Investors buying Facebook shares are betting that the company will find a way to monetize its 900 million users effectively.

By Wall St. Cheat Sheet May 17, 2012 7:55PM

Facebook (FB) hype has reached a new status. Thursday, the world's largest social networking company priced its initial public offering at $38, up from the $28 to $35 range set at the beginning of the month.

Facebook also decided to sell an additional 84 million shares, raising the total to more than 421 million shares. With the IPO finally pricing Thursday evening, how does Facebook stack up against other popular Internet names?

Facebook will raise over $16 billion in the offering. At that amount, it would become the third-largest IPO ever on an U.S. exchange, only following Visa (V) at $19.65 billion and General Motors (GM) at $18.15 billion. Facebook would also become the largest technology IPO in history.

"This is much more a spectacle, a media event and a cultural moment than it is an IPO," said Max Wolff, an analyst at GreenCrest Capital, according to Reuters. "This is not a game of models and fundamentals at this point.”

Nearly eight years ago, Google (GOOG) raised $1.67 billion in its IPO, far below Facebook's haul. The king of search engines priced its IPO at $85 per share. On the first day of trading, shares closed at $100. Since then, shares have experienced their fair share of ups and downs, but are currently above $600. While Google shares remain above their IPO price, not all recent Internet companies have been able to do so.

As the chart above shows, Pandora Media (P) and Zynga (ZNGA) shares have both fallen below their IPO price of $16 and $10, respectively. Pandora has dropped almost 30% from its IPO in June 2011, while Zynga is down 18% from last December. One of the surprising internet companies to trade higher than its IPO price is LinkedIn (LNKD). The professional networking company received an IPO price of $45 in May 2011 and now trades above $110.

Facebook's IPO price values the company at $104 billion. In comparison, Google's valuation was only $23 billion when it went public in 2004. Although Facebook is often compared to Google, the two companies could not be more different. Google has a tried and proven advertising system, while Facebook has yet to fully cash-in on its advertising model.

Investors buying Facebook shares this week are betting that the company will find a way to monetize its 900 million users more effectively. At a $100 billion valuation, Facebook would trade at almost 27 times 2011 sales, while Google trades at only 5 times. "That hope and potential is exactly why it's potentially a $100 billion deal," said Tim Cunningham at Thornburg Investment Management, according to Bloomberg.

On Tuesday, General Motors added to the Facebook advertising debate by announcing plans to stop advertising on Facebook. America's largest automaker met with Facebook managers to discuss concerns, but GM was not convinced that paid advertising on the social-media giant’s website was beneficial. The move is unlikely to temper demand for Facebook shares, though, as Ford (F) said it is doing more advertising on Facebook and is using the site as a critical part of the company's media mix.

Eric McWhinnie is an editor at Wall St. Cheat Sheet. As of this writing, he did not own a position in any of the aforementioned stocks.

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