Friday, May 18, 2012

FIN-ECON-Facebook Disappoints After IPO Priced at Top of Range

The following information is used for educational purposes only.


Facebook Disappoints After IPO Priced at Top of Range

By Lee Spears and Sarah Frier on May 18, 2012




Facebook Inc. (FB) (FB) hovered near the initial public offering price in its trading debut, following a record IPO that made the social network more costly than almost every company in the Standard & Poor’s 500 Index. (SPX)

The shares rose 23 cents above the IPO price of $38 as of 4 p.m. in New York. Facebook sold 421.2 million shares to raise $16 billion yesterday, giving the company a $104.2 billion market value.

Underwriters bought Facebook’s stock (FB) to keep it from falling below the IPO price, people with knowledge of the matter said today. The offering valued the company at 107 times trailing 12-month earnings, more than every S&P 500 member except Amazon.com Inc. and Equity Residential. The performance disappointed some investors who expected a first-day pop.

“They squeezed the lemon dry here,” said Dan Veru, chief investment officer at Palisade Capital Management, who didn’t participate in the IPO. “They didn’t leave enough on the table. You want to price these things a little lower, so that the shares have better support in the aftermarket.”

The bankers supported the stock after Nasdaq OMX Group Inc. faced difficulties delivering trade execution messages following the IPO, said one of the people, who asked not to be identified because the transactions are private. Facebook spokesman Jonathan Thaw declined to comment.

100 Times Earnings

The U.S. Securities and Exchange Commission said that it will review the incident to figure out its cause and any steps needed to address it.

The IPO price made Facebook, co-founded in 2004 by a then- teenage Mark Zuckerberg, the largest company to go public in the U.S. While Facebook has evolved from a Harvard University dorm- room project into a social network with more than 900 million users, revenue growth (FB) is poised to slow for a third straight year and advertising sales haven’t kept pace with user additions.

“This is what happens when you price something around 100 times earnings,” said Barry Ritholtz, chief executive officer at FusionIQ in New York. “If this closes poorly, there is nobody to blame but the company and the underwriters themselves.”

Facebook priced at the top end of its range of $34 to $38 a share, valuing it at about 26 times sales in the 12 months through March 31. As of yesterday, that was more than twice as much as AvalonBay Communities Inc. (AVB) (AVB), currently the most costly company by that measure in the S&P 500.

GM’s Offering

Facebook shares opened at $42.05 today and initially surged as high as $45 before paring gains.

At $16 billion, Facebook’s sale surpassed 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.

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 underwriters may buy an additional 63.2 million shares at the IPO price, which would enlarge the IPO to as much as $18.4 billion.

Facebook’s offering price gave 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.

IPO Performance

Facebook stock is listed on the Nasdaq Stock Market under the symbol FB. The social network, led by 28-year-old CEO Zuckerberg, 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. Before today, six of the 10 best-performing newly listed U.S. stocks this year had been Internet or technology companies, led by Guidewire Software Inc., the provider of software to the insurance industry that gained 95 percent.

Facebook’s IPO coincided with intensifying U.S. market turmoil. About $1 trillion had been erased from American equity values this month after speculation Greece will leave the euro region reversed the biggest first-quarter rally since 1998, according to data compiled by Bloomberg.

$176 Million

Facebook’s bankers, led by Morgan Stanley (MS) (MS), JPMorgan Chase & Co. (JPM) (JPM) and Goldman Sachs (GS) (GS) Group Inc., may split about $176 million for managing the IPO after accepting a lower-than-average fee for their work. Facebook hired more than 30 underwriters, which also included Bank of America Corp., Barclays Plc, Allen & Co., Citigroup Inc., Credit Suisse Group AG, and Deutsche Bank AG.

They’ll get about 1.1 percent of what Facebook raised, said two people with knowledge of the matter, who declined to be identified because the rate is private.

The IPO price gave Facebook a market value about half the size of Google Inc. (GOOG) (GOOG), which was worth more than $200 billion as of yesterday. The search-engine operator’s value has jumped almost ninefold in the eight years since it went public. To hand its public owners the same returns after pricing at the top of its offering range, Facebook would have to be worth about $920 billion by 2020. Apple Inc., the most valuable company in the world, had a market value of about $496 billion as of yesterday.

Eclipsing Google

Facebook’s offering eclipsed the 2004 IPO of Google, one of its chief competitors for online advertising. Google raised $1.9 billion in its initial share sale, including an over-allotment option. The shares sold at $85 apiece, giving Google a market value of about $23 billion, or about 10 times sales in the 12 months through June 30, 2004.

Facebook boosted the deal’s size amid a two-week series of meetings where Zuckerberg, Chief Operating Officer Sheryl Sandberg and Chief Financial Officer David Ebersman pitched the sale to investors across the U.S.

“There’s hundreds of millions of people that want to emotionally buy this stock and most of them are going to have to buy it in the aftermarket,” Jon Merriman, chief executive officer at investment firm Merriman Holdings Inc. in San Francisco, said before the stock began trading. “I’d like to see it season over a couple of months.”

Investors’ Plans

Venture capital firm Accel Partners, based in Palo Alto, California, planned to offer 49 million shares in the initial sale, while Goldman Sachs aimed to sell 28.7 million, according to terms Facebook disclosed this week. Digital Sky Technologies planned to sell 45.7 million shares, and Tiger Global Management planned to sell 23.4 million shares.

Facebook executives and directors planned to sell 189.4 million shares. Including restricted stock units, options and common stock to be issued following the purchase of Instagram, the shares outstanding would total 2.74 billion.

Some institutional investors (FB) had balked at buying into Facebook over concern about the site’s growth prospects, people with knowledge of the matter said last week. The social network generated sales of $3.7 billion last year, which are poised to rise 64 percent to $6.1 billion in 2012, according to researcher EMarketer Inc. Last month, Facebook said first-quarter profit (FB) fell to $205 million as sales growth slowed and marketing costs more than doubled.

Mobile Prospects

Facebook is trying to adapt as more users access its site via mobile phones instead of the Web. That put pressure on company executives to articulate their mobile strategy as they marketed the stock to potential investors ahead of the IPO. Facebook has said it would add mobile advertising along with new ads to reach users when they log off the company’s website.

Facebook still faces hurdles in traditional Web advertising. General Motors (GM) (GM), the world’s biggest automaker by vehicles sold, said this week it was halting display ads on Facebook, while maintaining brand-promotion pages.

“It worries me about the pressures that will be on Facebook to create this new stream of revenue,” John Chachas, managing partner at Methuselah Capital Advisors LP, said in an interview on Bloomberg Television. “A lot of what you do on Facebook is hanging out. That does not lend itself to the monetization question.”

To contact the reporters on this story: Lee Spears in New York at lspears3@bloomberg.net; Sarah Frier in New York at sfrier1@bloomberg.net

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net


Source: www.businessweek.com

No comments:

Post a Comment

All comments are welcomed as far as they are constructive and polite.

La vejez. Drama y tarea, pero también una oportunidad, por Santiago Kovadloff

The following information is used for educational purposes only. La vejez. Drama y tarea, pero también una oportunidad Los años permiten r...