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STREETINSIDER.COM'S FACEBOOK (FB) IPO PREVIEW

May 17, 2012 4:02 PM EDT Send to a Friend
It is finally upon us...

The highly anticipated IPO for Facebook (Nasdaq: FB) priced at $38 per share, which is the top end of the recently revised range of $34-$38.

TRADING:
Shares will be opening Friday on the NASDAQ under the symbol "FB." NASDAQ confirmed Facebook, Inc. will be released on NASDAQ today for quotation at 10:45 ET and trading at approximately 11:00 ET.

OFFER SIZE:
The number of shares being sold in the deal will be 421,233,615 shares, which was recently raised from 337,415,352 shares as more insiders opted to sell into the offering.

SHARES OUTSTANDING:
There will be 2.14 billion total Class A and Class B shares outstanding following the offering. Including options, the total can be pushed to 2.64 billion. In addition, some 63,185,042 shares can be sold if the underwriter over-allotment is exercised. This brings an ‘all-in’ total to about 2.7 billion.

VALUATION:
At $38 per share, this could bring the market valuation to ~$103 billion. This would be the highest value ever assigned to an IPO. The offering size of $18.4 billion will make it second to Visa’s (NYSE: V) $19.65 billion 2008 IPO.

UNDERWRITERS:
The main underwriters for the offering are top dogs Morgan Stanley (NYSE: MS), JPMorgan (NYSE: JPM) and Goldman (NYSE: GS). A host of others are also helping.

LOCK-UP:
For the IPO lock-up, 268 million shares will be available to be sold 91 days after the IPO, another 137 million 151-180 days after, 1.22 billion 181 days after, 124 million 211 days after and 47 million 366 days after. There will also be additional stock available for sale from option granted to former employees.

USERS:
Looking at users, Facebook said it has 901 million monthly active users (MAUs) as of March 31, 2012, up 33% from last year. The company had 526 million daily active users (DAUs) on average in March 2012, an increase of 41%. It gets 3.2 billion likes and comments per day, 300 million photo uploads and has 125 billion friendships.

FINANCIALS:
Looking at financials, the company posted revenues of $1.058 billion for the quarter ended of March 31, 2012, up 45% from last year. Net income was $205 million for the quarter ended of March 31, 2012, down from the $233 million posted in the same quarter last year.

For the year ended December 31, 2011, revenue was $3.711 billion up 88 percent from last year. Net income was $1 billion, up 65 percent from last year.

VALUATION:
At a $103 billion valuation, the company is trading at 28x last year’s revenues and 103x last year’s net income.

If the company earns 65 percent more this year than last year then expect net income of $1.65 billion this year. On a per share basis this will be $0.61 per share. At $38, this would create a forward PE ratio of 63x.

OPINION:
One overlooked fact in the Facebook IPO is that unlike any other IPO in history, Facebook has created an entire cottage industry that traded its stock pre-IPO. The benefit of an IPO is the 'liquidity premium'. However, the liquidity in Facebook was already there pre-IPO due to the secondary exchanges. Also, the valuation was being set on almost a daily basis - another thing that could limit the upside.

Given the valuation premium already granted to the company, the fact is, it needs to "grow" into its already high valuation.

In addition to the liquidity premium already existing, it is pretty clear that the company may be trying to keep a lid on the upside – seemingly trying to avoid a one day pop then crash. By raising the offering size 25 percent recently, this suggests that the company is trying to keep up with the massive demand.

All this being said, it would not be crazy for the stock to pop 25% tomorrow. We see the IPO popping 10-20% upon the open and then fading and settling into a valuation around $90-$120 billion until we get some solid growth numbers.

NOTE: Keep up-to-date on the Facebook IPO here.

Not ready to sink your foot into Facebook? Take a look at the secondary plays.




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Comments

RE: Question
TechGuy on 2012-05-18 07:49:58
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buy it. Going to $50

Question
Heather88 on 2012-05-18 06:16:03
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I want to buy into the IPO but I'm scared it's too high. Should I wait?

Facebook IPO
Crazy8 on 2012-05-17 20:43:05
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Welcome to the muppet show.

Shares
Facebook Friend on 2012-05-17 19:35:24
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This stock is going to $50 easy. Then it will crash back down to $25 once all suckers buy.


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