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Facebook lowballs on initial IPO price

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Internet Security Threat Report 2014

Facebook has filed its initial documents for the most anticipated social networking IPO of the current bubble, surprising some with a lowish estimate of $77bn to $96bn for the company.

Shares in the company will be traded under the moniker of FB and are expected to go for between $28 and $35 a share, with an initial stake of 337.4 million shares up for grabs, worth around $13bn. This makes it the biggest IPO since Google but, like Page and Brin, Mark Zuckerberg is making sure he keeps control of his progeny – while ensuring that employees and early investors can cash out.

"Mr. Zuckerberg, who after our initial public offering will control approximately 57.3 per cent of the voting power of our outstanding capital stock, will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors, as well as the overall management and direction of our company," the SEC filing reads.

Zuckerberg has been taking a personal interest in the company's M&A strategy, apparently masterminding the recent $1bn acquisition of Instagram and approving the purchase and licensing of a major patent bundle from Microsoft. The bulk of his share sales will go to offsetting his tax burden from the IPO.

Going low on price may be a smart move for the company, given the rather disappointing results from last week's financial data. Facebook's profits fell in respect to the opposition, and there are also lingering fears that the company might be part of a social networking bubble, but money managers are keen to pile into almost anything in the sector, as the recent Groupon IPO showed.

The filing documents also made it clear that Facebook's fortunes are very closely allied to those of Zynga. The gaming company has its own share issues and Facebook's filings say Zynga has control of over a tenth of its revenues.

"In 2011 and the first quarter of 2012, we estimate that up to 19 per cent and 15 per cent of our revenue, respectively, was derived from Payments processing fees from Zynga, direct advertising from Zynga, and revenue from third parties for ads shown on pages generated by Zynga apps," Facebook said.

All eyes will now turn to Facebook's forthcoming roadshow to investors to see if buyers are convinced that Facebook can continue the growth needed to justify its valuation. With its North American and European user base reaching maximum limits the company will have to look east to continue its hegemony, and despite Zuckerberg's overtures to China, that market is still locked down. ®

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