Facebook lowballs on initial IPO price
Let a thousand bubbles bloom
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. ®
$14 per person, worldwide
Can someone just clarify how it is possible that a single private entity can be worth $14 per person (including every man, woman and child in every developed, developing and 3rd world country)?
I thought a good rule of thumb used to be that a company should be valued at about what it's expected to make in profit over the next 10 years.
"masterminding the recent $1bn acquisition of Instagram"
Having the word "mastermind" in that sentence just seems wrong.
Re: Will we actually be able to buy FB?
The trouble is, a considerable portion of the other buyers will be doing the same thing. And a lot of those investors will have a great deal more money than you. Basically you're relying on your ability to judge things better than other people. Like a flock of birds all turning suddenly with you trying not to be the last to move. You don't have to be better than everyone else, you don't even have to be better than 50%, but you'd better make sure you're not much below.
If you think about it mathematically, what you have is a lot of people all throwing money into the pot and all thinking they'll be able to leave with more of it than they put in. Not everyone can be right. What makes you think you know better? Keep in mind that as a smaller investor, for you it entirely comes down to being able to judge when the flock begins to turn. The bigger players, they get to vote on when it turns by virtue of their decisions being noticeable in effect. And they know this.It's not strictly gambling as someone else said, it's just very risky. Risk and gambling are not the same things. Roulette and sky-diving are both risky, but only one is gambling.
Of course the above is only true for investors who are seeking to make money by buying low and selling high. There is another type of investor: those that buy to get dividends from an ongoing and profitable business. However, I leave it as an exercise for others to guess which sort of investor Facebook will appeal to most.
(Note: the putting money in a pot analogy is simplified because in the real situation, the pot exists over a long period of time with many exchanges and new people appearing all the time. The principle is roughly the same.)