Facebook Valuing Itself at Up to $96 Billion in IPO

Facebook Inc., the world’s most popular social-networking site, is valuing itself at as much as $96 billion in an initial public offering, the largest on record for an Internet company.

Facebook and its holders plan to sell about 337.4 million shares at $28 to $35 each, according to a regulatory filing today. At the high end of the range, the Menlo Park, California-based company would raise $11.8 billion, topping the record 2.92 billion euro ($2.8 billion) IPO for German Internet company T-Online International AG in 2000, according to data compiled by Bloomberg.

Under 27-year-old Chief Executive Officer Mark Zuckerberg and Chief Operating Officer Sheryl Sandberg, Facebook has amassed more than 900 million users and pushed revenue to more than $4 billion in the 12 months through March 31. The top end of the IPO range values Facebook at 24 times revenue on that basis, compared with 5 times for rival Google Inc., Bloomberg data show.

“It’s still a rich valuation, and unless they are going to monetize their user base, it’s going to take a whole lot of growth to justify that,” said Barry Ritholtz, CEO of FusionIQ, an equities research firm in New York.

Facebook is scheduled to price the offering May 17, Bloomberg data show. The company was considering an IPO valuation of as high as $100 billion, people with knowledge of the matter have said. At that amount, Facebook would have a market capitalization about half as high as Google’s -- even though it has one-10th the sales.

Offering’s Origins

Facebook is offering 180 million shares, while existing owners such as Accel Partners and Digital Sky Technologies are offering 157.4 million, according to the filing. Zuckerberg is offering 30.2 million of his 533.8 million shares. The majority of his net proceeds will be used to pay taxes associated with exercising a stock option.

Zuckerberg may control about 57 percent of the voting power of Facebook’s outstanding capital stock after the offering, according to the filing. Sandberg, who isn’t selling in the offering, holds 1.9 million shares.

Facebook will have 2.14 billion Class A and B common shares outstanding following the IPO, worth about $75 billion at the top end of the price range. Including restricted stock units, options and common stock to be issued following the purchase of Instagram Inc., the shares outstanding would total 2.74 billion, implying a market value of $96 billion at the high end.

Facebook’s Float

Facebook isn’t pursuing the so-called “low-float” strategy employed by some Internet companies to boost initial demand for their stock. The company is making 16 percent of its class A and class B common stock public in the sale, a higher proportion than Internet peers Groupon Inc., LinkedIn Corp. and Pandora Media Inc. sold in their IPOs, Bloomberg data show. Taking into account other shares, options and restricted stock units that may be added, the float would be about 12 percent.

On average, the 28 Internet companies that have completed U.S. IPOs since the beginning of 2011 have floated 17 percent of their shares, Bloomberg data show. In a typical initial offer, investors receive shares worth closer to 20 percent of the company, according to Paul Deninger, a senior managing director at New York-based investment bank Evercore Partners Inc.

Google Comparison

Facebook filed for the IPO Feb. 1, using a placeholder amount of $5 billion. Zuckerberg, a co-founder, is the company’s top holder, filings show. Morgan Stanley, JPMorgan Chase & Co. and Goldman Sachs Group Inc. are leading Facebook’s IPO. The shares will be listed on the Nasdaq Stock Market under the symbol FB.

The initial share sale would dwarf the 2004 IPO of Google, Facebook’s biggest competitor for online ads and the world’s most valuable Internet company. Google’s offering, the same year Zuckerberg helped found Facebook, raised $1.9 billion and valued the company then at about $23 billion. The company currently has a market value of almost $200 billion.

Facebook follows fellow Internet companies such as Zynga Inc. and Groupon in going public. Zynga, the maker of Internet games such as “Farmville,” raised $1 billion in its December IPO, while online-coupon provider Groupon raised $805 million, including an overallotment option, in November. Both stocks are trading below their offer prices.

Harvard Beginnings

Zuckerberg co-founded Facebook with his college roommates at Harvard University, developing a site that let students socialize over the Web. He later made the service accessible to everyone, intensifying competition with sites such as MySpace and Friendster.

Both eventually succumbed to Facebook, which lured users with innovative features like News Feed, which lets people check on friends’ activities in a single place. News Corp., which bought MySpace in 2005, sold the site last year for a fraction of the price it paid. Friendster revamped itself as a social-gaming platform following its 2009 purchase by Malaysia’s MOL Global Ltd.

Facebook’s revenue surged 88 percent last year to $3.71 billion, with online advertising accounting for almost all of it. The company also is sharpening its focus on the mobile market as users spend more time accessing the site through Internet-ready handheld devices such as the iPhone. In the first quarter of 2012, sales climbed 45 percent to $1.06 billion.

“Some people will buy Facebook stock no matter what -- they’ll just buy it,” said Francis Gaskins, president of researcher IPOdesktop.com in Marina Del Rey, California. “There’s going to be an initial push of enthusiasm and money, but ultimately, in a year or so, it will come down to valuation metrics. It has to.”

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