Facebook 'to boost size of IPO by 25pc to raise $15bn'
FACEBOOK will reportedly increase the size of its initial public offering by 25pc to raise about $15bn, as strong investor demand for a share of the social network trumped ongoing debate about the company's long-term potential to make money.
Facebook, founded eight years ago by Mark Zuckerberg in a Harvard dorm room, will add about 85m shares to its IPO, floating about 422m shares in an offering expected on Friday, a source told Reuters, declining to be identified because the information was confidential.
The expanded size, coupled with Facebook's recently announced plans to raise the IPO price range, would make Facebook the third-largest initial share sale in US history after Visa and General Motors.
Facebook declined to comment on the increased offering size.
The social networking company is drumming up massive demand for the IPO even as slowing revenue and user growth spur questions about the long-term Facebook story.
"This is much more a spectacle, a media event and a cultural moment than it is an IPO," said Max Wolff, an analyst with GreenCrest Capital. "This is not a game of models and fundamentals at this point."
On Tuesday, General Motors said it planned to pull out of advertising on Facebook, underscoring worries about revenue growth.
GM's announcement, while ill-timed, should not seriously hurt Facebook's IPO reception for now as it may not be representative of advertisers' overall attitude, said Brian Wieser, an analyst with Pivotal Research Group.
"The demand for the IPO probably won't be affected materially by this," said Wieser. But he noted that there were probably a lot of calls between underwriters and investors following GM's announcement.
The IPO, Silicon Valley's largest, eclipses the roughly $2bn debut by Google in 2004.
Facebook raised the target price range to between $34 and $38 per share in response to strong demand, from $28 to $35, according to a Tuesday filing.
That would value the company at roughly $93bn to $104bn, rivaling the market value of Internet powerhouses such as Amazon.com, and exceeding that of Hewlett-Packard and Dell combined.
The increased price range made it very unlikely that Facebook shares would double on their first day of trading as they might have if the company had come out at the low end of its initial price range, Wolff said. He expects a first-day gain of about 10pc.
"No rational person thought they were buying the stock for $28," said Wedbush Securities analyst Michael Patcher, noting that Facebook had traded as high as $44 in the secondary markets in recent months.
Facebook said in its latest filing that it arrived at the higher IPO price range after one week of marketing the offering - part of a cross-country road show in which CEO Zuckerberg has taken the stage to lay out his vision for the company's money-making potential and its top priorities.
Before the IPO size was increased, Facebook would have raised about $12.1bn based on the midpoint price of $36 and the 337.4m shares on offer originally.
At this midpoint, Facebook would be valued at roughly 27 times 2011 revenue, or 99 times earnings. Google went public at a valuation of $23bn, or 16 times trailing revenue and 218 times earnings. Apple, meanwhile, went public in 1980 at a valuation of 25 times revenue and 102 times earnings.
Facebook's IPO comes as some investors worry that the company has not yet figured out a way to make money from a growing number of users who access the social network on mobile devices such as smartphones. Meanwhile, revenue growth from Facebook's online advertising business, which accounts for the bulk of its revenue, has slowed in recent months.
With some 900m users, it had $1bn in net income on revenue of $3.7bn in 2011.
Facebook is scheduled to price its shares on Thursday and begin trading on the Nasdaq on Friday. A host of Wall Street banks are underwriting the offering, with Morgan Stanley, JPMorgan and Goldman Sachs serving as leads.