Facebook frenzy in full swing ahead of stock offering
Posted May 16, 2012
Raleigh, N.C. — Just two days before Facebook shares are scheduled to begin trading on the Nasdaq Stock Market, the frenzy to snatch up pieces of Mark Zuckerberg's multi-billion dollar pie is in full swing.
On Tuesday, the company made its IPO even bigger by increasing the planned price range for its stock to $34 to $38 per share in a filing with the Securities and Exchange Commission, up from the previous estimates of $28 to $35.
The move, which values Facebook as high as $104 billion, comes amid growing investor excitement about the offering.
Early Wednesday, Facebook also disclosed plans to sell more shares than originally planned. Bloomberg news reported that Facebook is increasing the offering to 421.2 million shares, up from the original 337.4 million. The increase means Facebook could raise as much as $16 billion. Existing Facebook shareholders are planning to sell 241.2 million shares rather than the 157.4 million as originally planned.
Investors are betting that Chief Executive Officer Mark Zuckerberg can overcome slowing sales growth by expanding into areas such as mobile advertising and e-commerce, said Samuel Schwerin, managing partner at New York-based Millennium Technology Value Partners.
“An increasing number of institutional investors are looking beyond the value of the business today and looking at the future growth,” Schwerin, whose firm oversees $1 billion, including Facebook stock, said Tuesday. “Those drivers are extraordinary in size, including international and mobile and commerce.”
At $16 billion, Facebook’s debut would surpass that of General Motors Co. to be 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.
While many first-time investors and casual Facebook users like the idea of possibly owning a piece of the company, North Carolina State University economics professor Mike Walden says it will take friends in high places or a lot of cash to buy shares at the offer price.
"Most of (the shares) will likely go to large institutional investors, so even if you want to invest in Facebook, it's going to be tough," Walden said.
Shares could be easier to get once the stock begins trading under the ticker symbol "f-b" on Friday, Walden said, but those looking to get in on one of the largest IPOs in American history will likely pay more than the initial offering. Professor: Facebook will have to prove its value over time
"There's a lot of buzz about this, a lot of excitement," Walden said. "You could very well see once the IPO is issued the price take a big bounce."
In an Associated Press-CNBC poll conducted before the company raised its expected stock price, only a third of those surveyed said they think Facebook's expected value is appropriate. Nearly half of Americans think the expected value, which would be higher than Ford and Kraft, is too much.
"Facebook eventually is going to have to justify its share price by its revenues, its profits and there are some questions about Zuckerberg being young," Walden said. "If you're interested in Facebook, fine, that's great, but don't throw all of your investment money into it."
The IPO is is expected to raise more than 10 times as much as the $1.67 billion raised in Google eight years ago. At a value of $38 per share, the high end of Facebook's expected range, Facebook would generate $6.84 billion on its shares. Existing stockholders would collectively make $5.98 billion.