Is $96B Cool Enough for Facebook?

Facebook announced an estimated price for its long-awaited initial public offering Thursday, setting a range of US$28 to $35 per share. The top end of its estimate would give the social network a valuation of $96 billion.

The company’s upcoming roadshow starts Monday and will stop in major U.S. cities including New York, Boston, Chicago and San Francisco.

About 337.4 million Facebook shares will be offered under the ticker “FB,” probably starting around May 17 or 18, according to sources that spoke with The New York Times. Of those 337 million shares, 180 million are being sold by Facebook. The remaining 157.4 million shares will be offered by existing owners such as Accel Partners and Digital Sky Technologies.

The price point would make Facebook’s IPO by far the biggest of any U.S. tech company. When Google went public in 2004, it had a $23 billion valuation. Depending on the final valuation, Facebook CEO Mark Zuckerberg could earn as much as $17.6 billion from the sale. He’ll offer 30.2 million of his 533.8 million shares, and the majority of that profit will be used to pay off tax obligations from the sale. He will continue to hold voting power attached to about 57.3 percent of the company’s voting stock, according to an SEC filing regarding the IPO.

Facebook didn’t respond to our requests for comment on the story.

Shooting Low?

The price is slightly lower than generally expected for the social network’s highly anticipated launch into the public market. It’s possible the underwriters are shooting low to drum up even more excitement about the public debut, Daniel Bradley, associate professor at the University of South Florida College of Business, told the E-Commerce Times.

“I wouldn’t be surprised if they’re pricing it lower,” said Bradley. “That’s a common approach by underwriters, and especially here, when there’s not much anticipation for this particular stock.”

Similar anticipation has surrounded other tech stocks that have gone public recently, such as Zynga, Groupon and LinkedIn, but the popularity of the social network, its record valuation and its delay in getting to the public market has created a particularly high level of frenzy around a Facebook. That hype could help give Facebook a bigger boost than the $96 billion it’s targeting, said Stowe Boyd, chief researcher at World Talk Research and analyst at GigaOM Pro.

“I am betting that Facebook’s offering will fly to more than $100 billion, simply because of an irrational desire in the marketplace to be involved in the deal,” he told the E-Commerce Times. “Most participation in IPOs is irrational. There is no quick return except for those cashing out.”

Uncertainty Looms

That’s one reason investors might think twice before pouring cash into Facebook, said Bradley.

“There are so many underwriters here that are going to provide analyst coverage,” he said. “But they’re certainly going to be concerned after the lockout period.”

While setting a lower price could mean Facebook has a strong day out of the gates, said Bradley, there’s still uncertainty surrounding the company. The world’s largest social network revealed that as of last quarter, it has 900 million users worldwide, but continued growth is still an issue. Investors may be worried that the company has plateaued. It especially has to show that it can grow in emerging markets such as China, which holds the world’s largest population of Internet users, and in the mobile market, where competitors such as Google are making huge strides.

“If I were an investor I’d be concerned about revenue growth,” said Bradley. “In particular, in the overseas market and about how much revenue they can ultimately be expected to derive, because there’s so much uncertainty with this company.”

That’s the case with any IPO, but in this case, it’s especially exacerbated, he said.

“I wouldn’t be surprised if the valuation went up before it went public, has a first day pop, and continues to do well until the lockout. But then there might be a lot of people looking to cash out,” said Bradley.

Ultimately, said Boyd, if Facebook can’t keep up in the rapidly evolving Internet landscape, it could end up going down the path of other once-revered Internet stars.

“Facebook is the proof of George Orwell’s assertion, ‘Whoever is winning now will always seem to be invincible,'” said Boyd. “When in truth, they could turn out to be the next AOL.”