Facebook made it's IPO Friday. Are you excited?
Investors may not think Facebook is worth much more than the $38 price at which the company's shares went on sale Friday for the first time.
Facebook shares started trading at about 8:30 a.m. Pacific under the ticker symbol FB. Nasdaq real-time stock ticker
After rising more than ten percent to $42.05, the stock then slipped back below $40, even moving down to the $38 starting point again.
Facebook and its early investors raised $16 billion in the initial public offering, which valued the company at $104 billion. That makes Facebook the most valuable U.S. company ever to go public. Now, the stock market will assign a dollar value to Facebook that will rise and fall with investor whims.
Facebook is one of the few profitable Internet companies to go public recently. It had net income of $205 million in the first three months of the year.
The day began with the company's 28-year-old CEO, Mark Zuckerberg, ringing the Nasdaq opening bell from Facebook's headquarters in Menlo Park, Calif. He wore his signature hoodie and was surrounded by cheering Facebook employees.
ONE ARGUMENT FOR BUYING
Facebook will sell on the open market for 20 times the company's projected 2012 revenue, based on its IPO price of $38. Google, by comparison, is trading at about six times its projected revenue for this year.
But Facebook hasn't been as aggressive as it could have been about selling ads or finding other ways to make money where its visitors, on average, dwell for an average of 6 1/2 hours per month, according to comScore Inc.
Instead of ramping up revenue, Facebook has concentrated on attracting users -- an emphasis that is bound to pay off.
Facebook also has a big personnel advantage: Sheryl Sandberg, hired as the company's chief operating officer in 2008. She played a key role in expanding Google's advertising system during its first few years as a publicly held company, a period when the company's stock hit its peak so far.
THE ARGUMENT AGAINST JUMPING IN
The banks helping take Facebook public want us to value this 8-year-old upstart at as much as $104 billion, more than Disney or Kraft Foods, though those companies earn three and four times more. That top valuation is also more than 100 times Facebook's earnings last year, versus 13 times for the average company.
At such a high price, it will take years for this so-called earnings multiple to fall to a more reasonable level, and that's assuming the company can maintain its torrid earnings growth.
To make money in Facebook, you're betting that other buyers will be just as willing as you to hold their nose at the valuation, and keep doing so for years.
Facebook grew its earnings 65 percent last year, faster than at most companies, so you should pay more for it than you would the typical company. But how much more? Profits at Apple grew 85 percent last year. Its stock is trading at 13 times earnings per share.
POP AND DROP
Several of last year's must-have IPO stocks aren't exactly must-haves anymore.
Pandora, an Internet radio company, went public June 15 at $20 a share. You could have bought the stock during the day for $26. It's now trading under $11.
Groupon, the online daily deal company, priced its stock at $20 a share on Nov. 4. It traded above $31 the first day and is now under $13.
And LinkedIn, a social network for professionals, more than doubled from its $45 offer price within minutes of hitting the market last May 19. It reached $122.70 on the first day before closing at $94.25. It's back to about $105.
THE REACTION ONLINE
Facebook's IPO was popular, but not that popular, on Twitter. God, a retiring Chicago Cubs pitcher, Kanye West's new film and Haitian Flag Day all were trending higher in the U.S. at 10:30 a.m.
Down at No. 9 was "$FB," a tag used to talk about the offering. At the top of the list? The hashtag "ThingsWeAskGod2helpUsWith," along with news about the possible retirement of Cubs pitcher Kerry Wood and "Cruel Summer," the name of Kanye West's short film that will debut at the Cannes Film Festival.
The IPO was No. 2 in trending Google searches, right after the death of disco queen Donna Summer.
SOME PERSPECTIVE ON MARKET VALUE
The IPO price values Facebook at $104 billion. By comparison, here are the top five companies in the Standard & Poor's 500 index by market value, based on Thursday's closing stock prices:
- Apple, $496 billion
- Exxon Mobil, $383 billion
- Microsoft, $250 billion
- IBM, $229 billion
- Wal-Mart Stores, $210 billion
TALE OF THE TAPE
How Facebook stands up against one of its Internet rivals, Google, based on the most recent available data:
- Annual revenue -- Google $38 billion, Facebook $3.7 billion.
- Advertising revenue -- Google $36.5 billion, Facebook $3.2 billion.
- Annual net income -- Google $9.7 billion, Facebook $668 million.
- Employees -- Google 33,100, Facebook 3,500.
NEXT STOP: 1 BILLION
Have a look at how explosively Facebook has grown. According to the company, this is when the site passed milestones for its number of active users, defined as someone who logs on at least once a month:
- 1 million -- End of 2004.
- 5.5 million -- End of 2005.
- 12 million -- End of 2006.
- 20 million -- April 2007.
- 50 million -- October 2007.
- 100 million -- August 2008.
- 150 million -- January 2009.
- 175 million -- February 2009.
- 200 million -- April 2009.
- 250 million -- July 2009.
- 300 million -- September 2009.
- 350 million -- End of 2009.
- 400 million -- February 2010.
- 500 million -- July 2010.
- 608 million -- End of 2010.
- 750 million -- July 2011.
- 800 million -- September 2011.
- 845 million -- End of 2011.
- 901 million -- March 2012.