IBJNews

Shares of Facebook stall after company's record IPO

Back to TopCommentsE-mailPrintBookmark and Share

Facebook Inc. 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.

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 Thursday, giving the company a $104.2 billion market value.

The stock had spiked early in trading, reaching as high as $45.

Underwriters bought Facebook’s stock to keep it from falling below the IPO price, people with knowledge of the matter said. 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 IPO price made Facebook, co-founded in 2004 by a then- teenage Mark Zuckerberg, the largest company to go public in the United States. While Facebook has evolved from a Harvard University dorm-room project into a social network with more than 900 million users, revenue growth 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 Thursday, that was more than twice as much as AvalonBay Communities Inc., currently the most costly company by that measure in the S&P 500.

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.

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 Thursday, data compiled by Bloomberg show. Before Friday, 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.
Facebook’s bankers, led by Morgan Stanley, JPMorgan Chase & Co. and Goldman Sachs 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., which is worth more than $200 billion. 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.

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. Of what value is selling alcoholic beverages to State Fair patrons when there are many families with children attending. Is this the message we want to give children attending and participating in the Fair, another venue with alooholic consumption onsite. Is this to promote beer and wine production in the state which are great for the breweries and wineries, but where does this end up 10-15 years from now, lots more drinkers for the alcoholic contents. If these drinks are so important, why not remove the alcohol content and the flavor and drink itself similar to soft drinks would be the novelty, not the alcoholic content and its affects on the drinker. There is no social or material benefit from drinking alcoholic beverages, mostly people want to get slightly or highly drunk.

  2. I did;nt know anyone in Indiana could count- WHY did they NOT SAY just HOW this would be enforced? Because it WON;T! NOW- with that said- BIG BROTHER is ALIVE in this Article-why take any comment if it won't appease YOU PEOPLE- that's NOT American- with EVERYTHING you indicated is NOT said-I can see WHY it say's o Comments- YOU are COMMIES- BIG BROTHER and most likely- voted for Obama!

  3. In Europe there are schools for hairdressing but you don't get a license afterwards but you are required to assist in turkey and Italy its 7 years in japan it's 10 years England 2 so these people who assist know how to do hair their not just anybody and if your an owner and you hire someone with no experience then ur an idiot I've known stylist from different countries with no license but they are professional clean and safe they have no license but they have experience a license doesn't mean anything look at all the bad hairdressers in the world that have fried peoples hair okay but they have a license doesn't make them a professional at their job I think they should get rid of it because stateboard robs stylist and owners and they fine you for the dumbest f***ing things oh ur license isn't displayed 100$ oh ur wearing open toe shoes fine, oh there's ONE HAIR IN UR BRUSH that's a fine it's like really? So I think they need to go or ease up on their regulations because their too strict

  4. Exciting times in Carmel.

  5. Twenty years ago when we moved to Indy I was a stay at home mom and knew not very many people.WIBC was my family and friends for the most part. It was informative, civil, and humerous with Dave the KING. Terri, Jeff, Stever, Big Joe, Matt, Pat and Crumie. I loved them all, and they seemed to love each other. I didn't mind Greg Garrison, but I was not a Rush fan. NOW I can't stand Chicks and all their giggly opinions. Tony Katz is to abrasive that early in the morning(or really any time). I will tune in on Saturday morning for the usual fun and priceless information from Pat and Crumie, mornings it will be 90.1

ADVERTISEMENT