Facebook Inc. raised $16 billion in the biggest initial public offering by a technology company in history, pricing the shares at the top end of an increased range.
The social network, led by 28-year-old Mark Zuckerberg, sold 421.2 million shares at $38 each, data compiled by Bloomberg show. This week, Menlo Park, California-based Facebook expanded the IPO to meet demand, allowing backers Goldman Sachs Group Inc. and Accel Partners to reap more gains.
The offering marks the culmination of Facebook’s evolution in less than a decade from a Harvard University dorm-room project into a social network with more than 900 million users. While Zuckerberg persuaded investors to buy the shares at a higher price-to-earnings multiple than almost every company in the Standard & Poor’s 500 Index, he now faces stemming slowing sales growth after profit fell 12 percent last quarter.
“It’ll be a slam dunk when the shares surge on the first day of trading,” said Walter Todd, who oversees about $940 million as chief investment officer of Greenwood Capital in Greenwood, South Carolina. “But I’m not sure that’ll still be true a little further out.”
Todd said he’ll wait until Facebook has reported quarterly earnings at least once before he considers buying the shares. The stock is scheduled to start trading tomorrow on the Nasdaq Stock Market under the symbol FB.
Facebook hired more than 30 underwriters for the sale, led by Morgan Stanley, JPMorgan Chase & Co. and Goldman Sachs. Underwriters will have the option to buy an additional 63.2 million shares from the company and its holders after the IPO, according to a regulatory filing yesterday.
Facebook boosted the deal’s size amid a two-week series of meetings where Chief Executive Officer Zuckerberg, Chief Operating Officer Sheryl Sandberg and Chief Financial Officer David Ebersman pitched the sale to investors across the U.S. Yesterday Facebook said it planned to sell 421.2 million shares at $34 to $38 apiece.
The offering eclipses the 2004 IPO of Google Inc., one of Facebook’s chief competitors for online advertising. Google raised $1.9 billion in its initial share sale, including an over-allotment option. The shares sold at $85 apiece, giving Google a market value of about $23 billion, or about 10 times sales in the 12 months through June 30, 2004.
Today Mountain View, California-based Google is worth more than $200 billion, making it the most valuable Internet company. At the top end of Facebook’s planned IPO range, the social network’s market value amounted to more than $104 billion.
Captivating Silicon Valley
“Facebook has captivated the attention of the financial and technology communities because of the sums involved and because it’s really something that touches most everyone’s online experience,” said Ray Valdes, an analyst at Gartner Inc. in San Jose, California. “They want to do well for the initial sellers, the initial buyers and the later buyers. That’s very hard to do, that combination.”
Venture capital firm Accel, based in Palo Alto, planned to offer 49 million shares, while Goldman Sachs aimed to sell 28.7 million, according to terms Facebook disclosed yesterday. Digital Sky Technologies planned to sell 45.7 million shares, and Tiger Global Management planned to sell 23.4 million shares. Facebook executives and directors planned to sell 189.4 million shares.
Some institutional investors had balked at buying into Facebook over concern about the site’s growth prospects, people with knowledge of the matter said last week. While Facebook’s IPO terms valued the company more expensively than members of the S&P 500 relative to sales, roadshow attendees asked Zuckerberg how he will retain momentum after revenue surged 24-fold from 2007 through 2011, according to observers present.
The social network topped $4 billion in revenue in the 12 months through March 31, with more than 900 million users. Sales are poised to rise 64 percent to $6.1 billion in 2012, according to researcher EMarketer Inc., which would be the third straight year of slowing growth. Last month, Facebook said first-quarter profit fell to $205 million as sales growth slowed and marketing costs more than doubled.
Growth in advertising sales isn’t keeping pace with gains in users, many of them logging on from handheld devices, Facebook said this month. This put pressure on company executives to articulate their mobile strategy as they marketed the stock to potential investors ahead of the IPO. Facebook has said it would add mobile advertising along with new ads to reach users when they log off the company’s website.
Facebook still faces hurdles in traditional Web advertising. General Motors Co., the world’s biggest automaker by vehicles sold, said this week it was halting display ads on Facebook, while maintaining brand-promotion pages.