Facebook Stock Shares valued at $38 each – Total Worth $104 billion – www.nasdaq.com
Facebook has priced its shares ahead of one of the most eagerly-anticipated share flotations in recent stock market history.
The social network said on Thursday that it valued shares at $38 (£24) each, and that its shares would begin trading in New York on Friday.
At this price the eight-year-old firm would be worth $104bn (£66bn).
Facebook Stock Update:
Facebook shares are scheduled to begin trading at 11 a.m. Eastern time Friday, 90 minutes after the Nasdaq Stock Market opens. The late start is designed to give sufficient time to process what is expected to be a crush of opening-day orders.
Nasdaq OMX Group Inc. (NDAQ) told traders Thursday that shares in Facebook Inc. are expected to be released for trading at approximately 11 a.m. EDT Friday.
The exchange group also is planning a live, two-hour conference call beginning at 10:15 a.m. EDT Friday “to keep the industry informed leading up to and during the Facebook IPO,” according to a separate notice.
Nasdaq OMX in recent days has taken extraordinary steps to ensure a smooth public debut for the social media giant, seen as the biggest IPO on record in terms of valuation at the time of the transaction, and the target of intense interest among both professional and individual investors.
Shares in the company priced Thursday at $38 a share, at the high end of a range that had already increased earlier this week.
The New York-based market operator has held four tests of its IPO auction systems in the past week, seen by traders as precautionary efforts following glitches that struck several recent flotations.
The initial public offering of the social media giant will be released for quotation at about 10:45 a.m. in the run-up to open trading, according to a notice issued by the exchange group. Live trading will begin about fifteen minutes later, exchange officials wrote in the notice.
Nasdaq’s market-wide call on the Facebook roll-out won’t be open to the media, according to exchange officials.
Other U.S. stock exchanges made their own preparations for the heavily anticipated IPO, while also notifying members that they would not be able to participate in the initial auction of shares.
After Nasdaq OMX completes the initial auction of Facebook shares, the first trade will print on its market before trading in the stock opens moments later for trading across all 13 U.S. stock exchanges.
“Members that wish to be executed at the Nasdaq opening print are advised to route their orders to Nasdaq,” officials with stock exchange company Direct Edge told customers in an exchange notice.
NYSE Euronext’s (NYX) electronic stock exchange Arca on Thursday rescinded its own plans to run an auction in the Facebook IPO, “in the interest of a fair and orderly market” and to remain consistent with Arca’s own rules, according to a notice issued by that exchange.
“Any orders in FB routed to Arca prior to the first FB print on NASDAQ will be rejected,” Arca officials wrote in the notice.
Demand is set to be high; earlier this week Facebook said it would be selling 25% more shares than planned.
But questions remain about the firm’s ability to generate profits and take advantage of mobile phone platforms.
There are also concerns that once the company has to answer to shareholders, there may be a greater emphasis on advertising to generate profits.
Earlier this week, the company indicated the price would be between $34-$38 a share, with about 421 million shares up for sale.
This would represent one of the highest value share sales, or initial public offerings (IPOs) in US history.
By selling shares at that value, Facebook raised $16bn for itself.
However, the new shareholders will not have much of a say in how the company is run.
The shares on offer are A shares, which carry one vote per share, whereas the current owners’ shares are B shares, which
carry 10 votes each.
They will control more than 96% of the votes after the public listing, with founder Mark Zuckerberg holding just under 56% of the voting power of the company.
Mr Zuckerberg, who owns about 25% of the company, stands to gain the most from taking Facebook public. Fellow founders Dustin Moskovitz and Eduardo Saverin will also become paper-billionares overnight, as will Napster founder and former employee Sean Parker.
US venture capital firm Accel Partners and Russian internet investment group Digital Sky Technologies also hold significant stakes in Facebook, while Microsoft and U2 frontman Bono also stand to make a huge profit on their investment in the company.
The social networking site has transformed the way in which hundreds of millions of people around the world communicate. It is also transforming the way companies advertise to existing and potential customers.
But Facebook’s 900 million users helped the company generate just $1bn in profit last year, and there are concerns about its ability to grow profits in the future.
For while it holds a depth of personal information advertisers dream about, Facebook only generates about $5 a year per user.
This has led a number of commentators to question the company’s valuation.
“Facebook will need to generate annual revenue of $30bn-$40bn in order to justify the likely valuation of the business,” said Victor Basta at Magister Advisors.
“This is a tenfold increase over the revenues that it currently generates. The question is ‘where from?'”.
The potential revenue from online advertising is huge.
“We know our industry is $1tn worldwide,” Martin Sorrell, chief executive of advertising giant WPP, told the BBC.
“We know internet advertising is currently 20% roughly [of the total]. We know people are spending almost a third of their time online in one way or another, so there’s a vast opportunity for Facebook.”
Generating greater revenues from this potential market is the first key challenge facing the company, both in terms of its own business model and in the face of strong competition from the likes of Amazon, Apple and Google.
“We’re telling our investors to hold off,” Oliver Pursche, president of Gary Goldberg Financial Services, told the BBC.
“Number one, we don’t know what the guts and the balance sheet of the company looks like yet so that’s a big red flag for us. We want to understand the business before we tell people to invest.”
Facebook has identified mobile devices, phones and tablet computers as key areas for revenue growth, but observers say this will not be easy.
“[Facebook is] the holy grail for advertisers. It holds the minutiae of everybody’s lives, the perfect concoction of information – age, sex and what you like,” technology analyst Ernest Doku told the BBC.
“[But] so many people are engaged for so long, it’s very difficult to lure them away to what you’re trying to sell them.”
The second big challenge is not alienating users while trying to maximise revenue.
“[The company] is balancing on a knife edge between servicing its users and pleasing its investors,” Mr Doku said.
“It has been able put the user experience first and foremost, but now investors are going to want [a return].”