Facebook’s IPO one of world’s largest

BARBARA ORTUTAY

AP Tech­nol­ogy Writer

NEW YORK — In one of the largest ini­tial pub­lic offer­ings of stock ever, Face­book said Thurs­day that it is rais­ing at least $16 bil­lion for itself and its early investors in a trans­ac­tion that val­ues the world’s defin­i­tive online social net­work at $104 billion.

It’s a big wind­fall for a com­pany that began eight years ago with no way to make money.

Face­book priced its IPO at $38 per share on Thurs­day, at the top of expec­ta­tions. The com­pany is sell­ing just a por­tion of its shares as part of the offer­ing. The $38 price means all of its shares will be worth about $104 bil­lion, giv­ing the com­pany a mar­ket value higher than Amazon.com and other well-known com­pa­nies such as Kraft, Dis­ney and McDonald’s.

Facebook’s stock is expected to begin trad­ing on the Nas­daq Stock Mar­ket some­time Fri­day morn­ing under the ticker sym­bol “FB.” That’s when so-called retail investors can try to buy the stock.

Facebook’s offer­ing is the cul­mi­na­tion of a year’s worth of Inter­net IPOs that began last May with LinkedIn Corp. Since then, a steady stream of star­tups focused on the social side of the Web has gone pub­lic, with vary­ing degrees of suc­cess. It all led up to Face­book, the com­pany that’s come to define social net­work­ing by get­ting 900 mil­lion peo­ple around the world to share every­thing from pho­tos of their pets to their deep­est thoughts.

It has done so while man­ag­ing to become one of the few prof­itable Inter­net com­pa­nies to go pub­lic recently. It had net income of $205 mil­lion in the first three months of 2012, on rev­enue of $1.06 bil­lion. In all of 2011, it earned $1 bil­lion, up from $606 mil­lion a year ear­lier. That’s a far cry from 2007, when it posted a net loss of $138 mil­lion and rev­enue of $153 million.

“They could have gone pub­lic in 2009 at a much lower price,” said Nick Ein­horn, research ana­lyst at IPO invest­ment advi­sory firm Renais­sance Cap­i­tal. “They waited as long as they could to go pub­lic, so it makes sense that it’s a very large offering.”

Face­book Inc. is the third-highest val­ued com­pany to go pub­lic, accord­ing to data from Dealogic, a finan­cial data provider. Only two Chi­nese banks, Agri­cul­tural Bank of China in 2010 and Indus­trial and Com­mer­cial Bank of China in 2006, have been worth more. At $16 bil­lion, the size of the IPO is the third-largest for a U.S. com­pany. The largest U.S. IPO was Visa, which raised $17.9 bil­lion in 2008. No. 2 was Enel, a power com­pany and No. 4 was Gen­eral Motors, accord­ing to Renais­sance Capital.

For the com­pany that was born in a Har­vard dor­mi­tory and went on to reimag­ine online com­mu­ni­ca­tion, the stock sale means more money to build on the fea­tures and ser­vices it offers users. It means an infu­sion of funds to hire the best engi­neers to work at its sprawl­ing Menlo Park, Calif., head­quar­ters, or in New York City, where it opened an engi­neer­ing office last year.

And it means early investors, who took a chance seed­ing the young social net­work with start-up funds six, seven and eight years ago, can reap big rewards. Peter Thiel, the ven­ture cap­i­tal­ist who sits on Facebook’s board of direc­tors, invested $500,000 in the com­pany back in 2004. He’s sell­ing nearly 17 mil­lion of his shares in the IPO, which means he’ll get some $640 million.

The offer­ing val­ues Face­book, whose 2011 rev­enue was $3.7 bil­lion, at as much as $104 bil­lion. The sky-high val­u­a­tion has its skep­tics, who worry about signs of a slow­down and Facebook’s abil­ity to grow in the mobile space when it was cre­ated with desk­top com­put­ers in mind. Rival Google Inc., whose rev­enue stood at $38 bil­lion last year, has a mar­ket cap­i­tal­iza­tion of $207 billion.

“There seems to be some­what of a hype around the stock offer­ing,” says Gart­ner ana­lyst Brian Blau.

That, of course, is an understatement.

Facebook’s IPO dom­i­nated media cov­er­age in the weeks and days lead­ing up to the event. Zuckerberg’s hoodie made head­lines as did Gen­eral Motors’ deci­sion to stop adver­tis­ing on the site —and rival Ford’s affir­ma­tion that its Face­book ads have been effective.

There are a few rea­sons for the exu­ber­ance. First, there’s Facebook’s sheer size and high pro­file. The com­pany grew from a college-only social net­work to an Inter­net phe­nom­e­non embraced by legions of peo­ple, from teenagers to grand­moth­ers to pro-democracy activists in the Mid­dle East.

Sec­ondly, it’s personal.

“It’s prob­a­bly one of the first times there has been an IPO where every­one sort of has a stake in the out­come,” Blau says. While most Face­book users won’t see a penny from the offer­ing, they are all inti­mately famil­iar with the com­pany, so it res­onates as some­thing they understand.

And then there’s CEO Mark Zucker­berg, who turned 28 on Mon­day. He has emerged as the lat­est in a lin­eage of Sil­i­con Val­ley prodi­gies who are alter­nately hailed for push­ing the world in new direc­tions and reviled for over­step­ping their bounds. He counted the late Apple CEO Steve Jobs among his men­tors and he became one of the world’s youngest bil­lion­aires — at least on paper — well before Face­book went pub­lic. A dra­ma­tized ver­sion of Facebook’s found­ing was the sub­ject of a Hol­ly­wood movie that won three Acad­emy Awards last year, pro­pelling Zucker­berg even fur­ther into the pub­lic spotlight.

Though Zucker­berg is sell­ing about 30 mil­lion shares, he will remain Facebook’s largest share­holder. Even after the IPO, he will own 503.6 mil­lion shares, or 32 per­cent of Facebook’s total shares. At the $38 share price, his stake in the com­pany is worth $19.1 bil­lion. Zucker­berg will con­trol the com­pany with 56 per­cent of its vot­ing stock as a result of agree­ments he has with other share­hold­ers who promise to vote his way.

The set-up helps to ensure that he and other exec­u­tives keep con­trol as the some­times con­flict­ing demands of Wall Street exert new pres­sures on the company.

True to form, Zucker­berg and Facebook’s engi­neers are ring­ing in the IPO on their own terms. The com­pany is hold­ing an overnight “hackathon” Thurs­day, where engi­neers stay up writ­ing pro­gram­ming code to come up with new fea­tures for the site. On Fri­day morn­ing, Zucker­berg will ring the Nas­daq open­ing bell from Facebook’s headquarters.

The $38 share price is the price at which the invest­ment banks arrang­ing the offer­ing will sell the stock to their clients. If extra shares reserved to cover addi­tional demand are sold as part of the trans­ac­tion, Face­book Inc. and its early investors stand to reap as much as $18.4 bil­lion from the offering.

Posted by AP News on May 17 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.