Facebook has raised its initial public offering price to between $34 and $38 a share after being “swamped” with requests, confounding sceptics who say the social network is overvalued.
The new price range is comfortably above the previous guide of $28 to $35, and confirms Facebook’s place in the history books as the most valuable company ever to go public in the United States when it begins trading on the Nasdaq stock exchange on Friday.
In a regulatory filing, the company founded by Mark Zuckerberg, who celebrated his 28th birthday on Monday, said it was planning to raise as much as $12.8bn (£7.99bn) by selling 12.3% of the company, implying the entire company is worth $104.2bn. The numbers will value Facebook on a par with online shop Amazon and see it smash through the record held for over a decade by United Parcel Service, which went public in 1999 at $60.2bn.
Analysts said there was so much interest in the stock that some underwriters closed their order books on Tuesday. The flotation is being marketed by a team of 33 underwriters that includes Morgan Stanley, JP Morgan and Goldman Sachs. A final price is expected on Thursday.
“They’re swamped with the orders that are in,” said Jon Merriman of investment firm Merriman Holdings in San Francisco. “They just need time to determine the price. They can send the message – the books are closing, send in your orders now.”
Investors small and large have been tussling to acquire the stock ahead of its Nasdaq debut, but only those with large accounts at bulge-bracket investment banks or major brokers are likely to be given the chance to do so.
Smaller players like 11-year-old Jade Supple, whose father is planning to bet her college savings on Facebook shares, will have to wait until Friday. Jim Supple, whose fortunes have been followed by the Wall Street Journal alongside other would-be Facebook stockholders since February, has been teaching his daughter about the shares and started investing money for her in eBay and Disney when she was a baby.
After she asked him during a drive last autumn: “Daddy, can I buy some of the Facebook company?” Supple tried to buy stock from Facebook employees during a January auction on the secondary markets, but the price went too high.
Father and daughter will now have to take their chances on Nasdaq once the company starts trading under the “FB” symbol. The tactic is a risky one. Demand can force a new stock to spike sharply, before early investors pull out and the price crashes back down to earth.
Recent tech listings Groupon, the coupons website, and games group Zynga are both trading below their offer price. Groupon has lost about 35% of its value since its November listing, while Zynga floated at $10 but closed on Monday at $7.95.
“Despite the doubts, the buyers like what they’re hearing,” said professor Erik Gordon at University of Michigan’s business school of Facebook’s pre-float investor roadshow.
At the upper end of the new range, Facebook will be priced at 26 times trailing 12-month sales, more than double Google’s valuation when the search-engine operator went public in 2004. Google raised just under $2bn in 2004, while Zynga’s float drummed up $1bn.
Facebook made $3.7bn in revenue and $1bn in profits last year, but both profit and revenues were down in the first quarter of 2012 compared with the Christmas period, a drop attributed to seasonal trends in advertising. A Facebook spokesman declined to comment.
[Mark Zuckerberg via jdlasica / Shutterstock]