Facebook's $38 IPO at End of First Day of Trading Worth ... $38

Shares Rose 23 Cents, Giving the Company a $104.2 Billion Market Value

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Facebookhovered near the initial public offering price in its trading debut, following a record IPO that made the social network more costly than almost every company in the Standard & Poor's 500 Index.

The shares rose 23 cents above the IPO price of $38 as of 4 p.m. in New York. Facebook sold 421.2 million shares to raise $16 billion yesterday, giving the company a $104.2 billion market value. Underwriters bought Facebook's stock to keep it from falling below the IPO price, people with knowledge of the matter said today.

The offering valued the company at 107 times trailing 12-month earnings, more than every S&P 500 member except Amazon.com and Equity Residential. The performance disappointed some investors who expected a first-day pop.

"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 made Facebook, co-founded in 2004 by a then-teenage Mark Zuckerberg, the largest company to go public in the U.S. While Facebook has evolved from a Harvard University dorm-room project into a social network with more than 900 million users, revenue growth is poised to slow for a third straight year and advertising sales haven't kept pace with user additions.

"This is what happens when you price something around 100 times earnings," said Barry Ritholtz, chief executive officer at FusionIQ in New York. "If this closes poorly, there is nobody to blame but the company and the underwriters themselves." 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 U.S. history, excluding so-called over-allotments, which let underwriters buy more shares at a later date, data compiled by Bloomberg show.

GM raised $15.8 billion in November 2010, before expanding the sale to $18.1 billion when underwriters exercised the over-allotment option. Visa raised $17.9 billion in its 2008 IPO, the biggest in the U.S., 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.

The IPO price gave Facebook a market value about half the size of Google, which was worth more than $200 billion as of yesterday. The search-engine operator's value has jumped almost ninefold in the eight years since it went public. To hand its public owners the same returns after pricing at the top of its offering range, Facebook would have to be worth about $920 billion by 2020. Apple, the most valuable company in the world, had a market value of about $496 billion as of yesterday.

Facebook's offering eclipsed the 2004 IPO of Google, one of its 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.

Facebook boosted the deal's size amid a two-week series of meetings where Zuckerberg, Chief Operating Officer Sheryl Sandberg and Chief Financial Officer David Ebersman pitched the sale to investors across the U.S.

"There's hundreds of millions of people that want to emotionally buy this stock and most of them are going to have to buy it in the aftermarket," Jon Merriman, CEO at investment firm Merriman Holdings in San Francisco, said before the stock began trading. "I'd like to see it season over a couple of months."

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. The social network generated sales of $3.7 billion last year, which are poised to rise 64% to $6.1 billion in 2012, according to researcher EMarketer. Last month, Facebook said first-quarter profit fell to $205 million as sales growth slowed and marketing costs more than doubled.

Facebook is trying to adapt as more users access its site via mobile phones instead of the Web. That 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, the world's biggest automaker by vehicles sold, said this week it was halting display ads on Facebook, while maintaining brand-promotion pages.

"It worries me about the pressures that will be on Facebook to create this new stream of revenue," John Chachas, managing partner at Methuselah Capital Advisors, said in an interview on Bloomberg Television. "A lot of what you do on Facebook is hanging out. That does not lend itself to the monetization question."

--Bloomberg

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