Facebook Inc. (FB)’s initial public offering has so far generated lower-than-expected demand from institutional investors who are concerned about the company’s growth prospects, people with knowledge of the matter said.
Some investors expressed reluctance after Facebook said on May 9 that advertising growth hasn’t kept pace with the increase in users, said the people, who asked not to be identified because the process is private. Facebook is also telling analysts that sales may not meet their most optimistic projections, two people said.
A Facebook Inc. IPO announcement flag flies outside of JPMorgan Chase & Co. headquarters in New York on May 4, 2012. Photographer: Peter Foley/Bloomberg
May 10 (Bloomberg) -- Jon Merriman, chief executive officer at Merriman Holdings Inc., talks about the outlook for Facebook Inc.'s initial public offering. Facebook CEO Mark Zuckerberg plans to raise as much as $11.8 billion through the IPO, the biggest in history for an Internet company. Merriman speaks with Emily Chang on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)
May 9 (Bloomberg) -- Lawrence Haverty, a portfolio manager at Gamco Investors Inc., talks about the outlook for Facebook Inc.’s initial public offering and the absence of Chief Executive Officer Mark Zuckerberg at the company’s roadshow in Boston. Haverty speaks with Stephanie Ruhle and Sara Eisen on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
May 7 (Bloomberg) -- Arvind Bhatia, an analyst at Sterne Agee & Leach Inc., talks about the outlook for Facebook Inc.'s initial public offering, the company and its shares. Facebook Chief Executive Officer Mark Zuckerberg is meeting would-be investors today as the largest social-networking service begins marketing its IPO, says a person with knowledge of the matter. Bhatia speaks with Betty Liu and Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)
May 10 (Bloomberg) -- Michael Pachter, a managing director at Wedbush Securities, talks about the leadership of Facebook Inc. Chief Executive Officer Mark Zuckerberg. He speaks with Emily Chang on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)
Facebook executives have another week to market the IPO, scheduled to price on May 17, and underwriters are stepping up efforts to drum up interest from large shareholders, one person said. Underscoring concerns that growth may taper for the world’s biggest social network, 79 percent of respondents in the Bloomberg Global Poll of 1,253 investors, analysts and traders who are Bloomberg subscribers said Facebook doesn’t deserve a valuation at $96 billion, the high end of its projected range.
“Expectations on Facebook are way too high,” said Mitsuo Shimizu, a market analyst at Tokyo-based Iwai Cosmo Securities Co. “Given its fundamentals, the company doesn’t look anywhere cheap in valuation.”
Lackluster interest from institutional investors at this stage could compel the company to rely more on buying from retail investors, from whom demand remains robust, people said. The company could still elicit enough demand to sell shares at or above the high end of a projected range, people said.
Slackening Growth
Institutional investors tend to hold shares longer than retail investors, lessening a stock’s volatility.
Chief Executive Officer Mark Zuckerberg plans to raise as much as $11.8 billion through the IPO, the biggest in history for an Internet company.
The Menlo Park, California-based company is seeking a market value of as much as $96 billion, and is offering 337.4 million shares at $28 to $35 each. The shares will be listed on the Nasdaq Stock Market under the symbol FB. Morgan Stanley (MS), JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS) are leading the sale.
Facebook is offering 180 million shares, while existing owners such as Accel Partners, Goldman Sachs and Digital Sky Technologies are offering 157.4 million shares. Zuckerberg is offering 30.2 million of his 533.8 million shares, and may control 57.3 percent of the voting power of Facebook’s capital stock outstanding after the offering, regulatory filings show.
Jonathan Thaw, a spokesman for Facebook, didn’t respond to a request for comment.
Facebook, co-founded by Zuckerberg in 2004 in a Harvard University dorm room, seeks a valuation at 24 times revenue, compared with 5 times for Google Inc., according to data compiled by Bloomberg.
Already the company’s growth has shown signs of slackening. Sales climbed 88 percent to $3.71 billion last year. According to researcher EMarketer Inc., revenue may increase 64 percent to $6.1 billion this year. That would be the third straight year of slowing growth.
To contact the reporters on this story: Serena Saitto in New York at ssaitto@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Zijing Wu in London atzwu17@bloomberg.net
To contact the editors responsible for this story: Jennifer Sondag at jsondag@bloomberg.net; Jacqueline Simmons at jackiem@bloomberg.net; Tom Giles at tgiles5@bloomberg.net
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