Posts tagged ‘IPO’

Falling flat on your Face(Book)

As anyone who has not been spent the last couple of months living off the grid will be aware, social networking giant Facebook (NASDAQ:FB), the brainchild of the hoodie-wearing, university-dropout Mark Zuckerberg, has gone public.

Before it kicked off its Initial Public Offering (IPO) roadshow, FB indicated it would be selling 337.4m shares (12.3% of the company) at somewhere between $28 – $35 a share, valuing the company at $96bn if it achieved the top end of the range.

Subsequently the company raised it’s target price range to $34 – $38 a share, which would value the company at just over $104bn.

Then, on Thursday, once the IPO had closed FB confirmed the final details of its listing: 421,233,615 shares at $38 a pop, raising $16bn and confirming an initial market capitalisation of approx. $104bn.

Given that in 2011, FB made $1bn profit on a revenue of $3.7bn that means it started off trading at over 28 times earnings. Apple at its peak share price of $644 was only trading at 5 1/2 times its eventual 2011 earnings and is now down to about 4.6x. Google is currently valued at just over 5x, Microsoft 3.5x, Intel 2.4x, Amazon 2x…

Facebook makes most of its money through advertising. It is thus concerning that their click through rates are below average. You can add to this their admitted problems with trying to making money on mobile traffic.

Yet, even given what – to me – looked like a company which has been horrendously overvalued, investors and analysts were expecting a first day ‘pop’ with, at the wilder end, estimates of 50% being made.

What they got instead was a fizzle with the shares closing up a paltry $0.23 (0.61%) – having opened at $42.05 (10.6%) and briefly touched $45 (18.4%) – and it seems that the only reason they didn’t close down was that the banks who underwrote the IPO took up their option to buy an additional 63,185,042 shares.

If I’d been silly enough to buy Facebook shares I’d be looking to cut my losses ASAP.

For comparison, here are the IPO and first day close details of some other internet companies:

Company Date Shares Float Price ($) Approx. Mkt Cap ($m) Close Price ($) % rise
Amazon (NASDAQ:AMZN) 1997-05-15 3,000,000 18 438 23.4 30
Google (NASDAQ:GOOG) 2004-08-24 19,605,052 85 23,000 100.34 18
Groupon (NASDAQ:GRPN) 2011-11-03 35,000,000 20 12,700 26.11 30.6
LinkedIn (NYSE:LNKD) 2011-05-19 7,840,000 45 4,410 94.25 109.4
Zynga (NASDAQ:ZNGA) 2011-12-16 100,000,000 10 7,000 9.50 -5

Still, I doubt Zuckerberg will be too worried. Even after selling 30.2m shares in order to satisfy the IRS, his net worth weighs in at approx. $19bn.

Given that then you’d have thought he’d have been able to hire himself a nice suit for his wedding…

Mark Zuckerberg with wife Priscilla Chan