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Go Big? Stay Home?

May 16, 2012

So I see that Facebook is going for a bigger money goal with the IPO.  Again.

Facebook, founded eight years ago by Mark Zuckerberg in a Harvard dorm room, said on Wednesday it will add about 84 million shares to its IPO, floating about 421 million shares in an offering expected to be priced on Thursday.

The additional shares will be sold by early investors including PayPal co-founder Peter Thiel, Accel Partners’ James Breyer and investment manager Tiger Global Management, the company said in a filing.

There are complaints that this will affect the early shareholders given that the stock will probalby not shoot up like it could if it came in on the lower end of its offering.  Of course, I think the point that most people miss is that an IPO is designed to raise cash for the company as much as it focuses on return for the individual owners.  The management at Facebook appears to think that the company can generate money.

Before the IPO size was increased, Facebook would have raised about $12.1 billion based on the midpoint price of $36 and the 337.4 million shares on offer originally.

At this midpoint, Facebook would be valued at roughly 27 times its 2011 revenue, or 99 times earnings. Google went public at a valuation of $23 billion, or 16 times its trailing revenue and 218 times earnings. Apple Inc went public in 1980 at a valuation of 25 times its revenue and 102 times earnings.

So, sure, raise the roof on it if you can, guys.  Operating budget can enable a company to survive long enough to actually generate momentum in the market.

I’m a loyal Facebook user (I think the wife would call me a junkie).  I think the company has a pretty good model, though maybe not one that makes it worth more than the companies that sell it the servers that power it.  However, if the market will pay, then why not take advantage of the opportunity to raise the cash?

I wish Facebook well in its effort.  The company is entering a pretty competitive market, and it now will have to face off with the likes of Google and Apple for the attention of consumer eyeballs in a measurable way.  I’ll be very interested to see how it positions itself strategically in its new world.

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