Facebook Inc rose in its trading debut following a record initial public offering (IPO) that made the social network more costly than almost every company in the Standard & Poor’s 500 Index.
The shares advanced 5.2 per cent to $39.97 at 12:10 pm in New York after earlier trading at the IPO price of $38, which valued the company at $104.2 billion. Facebook sold 421.2 million shares to raise $16 billion yesterday.
“They squeezed the lemon dry here,” said Dan Veru, chief investment officer at Palisade Capital Management, who didn’t participate in the IPO. “They didn’t leave enough on the table. You want to price these things a little lower, so that the shares have better support in the aftermarket.”
The IPO price valued the company at 107 times trailing 12-month earnings, more than every S&P 500 member, except Amazon.com and Equity Residential. The valuation also made Facebook, co-founded in 2004 by a then-teenage Mark Zuckerberg, the largest company to go public in the US.
Now the 28-year-old billionaire has to reward investors by squeezing more profit out of advertising, said Erik Gordon, a professor at the University of Michigan’s Ross School of Business.
“It shows tremendous confidence in the guy wearing the hoodie,” said Gordon, referring to Zuckerberg and the signature sweatshirt he wore during meetings to market the stock. “He hasn’t specified how he’s going to do it, but he’ll have to do it to justify this price.”
Facebook’s journey
In less than a decade, Zuckerberg has overseen California-based Facebook’s evolution from a Harvard University dorm-room project into a social network with more than 900 million users. Still, revenue growth is poised to slow for a third straight year and advertising sales haven’t kept pace with user additions.
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Facebook priced at the top end of its range of $34 to $38 a share, valuing it at about 26 times sales in the 12 months through March 31. As of yesterday, that was more than twice as much as AvalonBay Communities, currently the most costly company by that measure in the S&P 500.
At $16 billion, Facebook’s sale surpassed that of General Motors Co, making it the second-largest in US history, excluding so-called over-allotments, which let underwriters buy more shares at a later date.
GM raised $15.8 billion in November 2010, before expanding the sale to $18.1 billion when underwriters exercised the over-allotment option. Visa Inc raised $17.9 billion in its 2008 IPO, the biggest in the US, and later expanded the sale to $19.7 billion. Facebook’s underwriters may buy an additional 63.2 million shares at the IPO price, which would enlarge the IPO to as much as $18.4 billion.
Facebook’s offering price gave it a market capitalisation almost double the $60 billion United Parcel Service Inc, previously the biggest company to complete an IPO, was valued at when it went public in 1999, according to data compiled by Bloomberg and Dealogic.
Facebook stock is listed on the Nasdaq Stock Market under the symbol FB. The social network is the first company to complete a US IPO in a week, after vacuum-pump maker Edwards Group Ltd raised $100 million on May 10.