New York - Facebook is expected to price its initial public offering to raise more than $16-billion on Thursday, as strong demand, particularly from retail investors, fuels anticipation for a big pop in the stock when it begins trading on the Nasdaq.
Predictions on how much the stock will rise on Friday vary greatly, with some experts saying anything short of a 50-percent jump will be disappointing given the hype over what would be the third-largest initial share sale in US history, after Visa and General Motors. Other IPO watchers say the large size of the float, coupled with a raised price range, could curb first-day gains to as little as 10 percent.
“I think anything over 50 percent will be considered a successful offering - anything under that would be underwhelming,” said Jim Krapfel, analyst at Morningstar. “A lot of retail investors are not concerned about valuation. That's what is going to drive the first day pop.”
Lee Simmons, industry specialist at Dun & Bradstreet, had a more modest forecast.
“You've got a large offering at an increased price - so a huge pop may be difficult to achieve. I'd think a 10 to 20 percent pop over the offer price is expected,” Simmons said. “When you're talking about doubling or a pop the size of LinkedIn, it's more difficult to achieve because Facebook is just offering more shares... The others were smaller floats - under 10 percent - so you had this artificial feeding frenzy.”
Professional networking company LinkedIn’s shares doubled on their first day of trading on the New York Stock Exchange.
Another social media company, online games developer Zynga which makes lots of games for Facebook users, fizzled on debut and ended down five percent on its first day of trading on Nasdaq. No one Reuters spoke with said they were expecting a fall in Facebook's stock on Friday.
The No. 1 social network, with 900-million users, on Tuesday raised the target IPO price range to between $34 and $38 per share, from between $28 and $35.
That would value Facebook at $93-billion to $104-billion, rivalling the market value of Internet powerhouse Amazon.com, and exceeding that of Hewlett-Packard and Dell combined.
On Wednesday, Facebook increased the size of the IPO by almost 25 percent to 421 million shares, a 15 percent float. If it prices at the top of the range, as expected, Facebook would raise at least $16-billion - including a greenshoe option for underwriters, it would raise north of $18.4-billion.
Despite the high expectations, the social network started eight years ago in Chief Executive Mark Zuckerberg's Harvard dorm room does face challenges maintaining its growth momentum.
Some investors worry the company has not yet figured out a way to make money from the growing number of users who access Facebook on mobile devices such as tablets and smartphones. Meanwhile, revenue growth from Facebook's online advertising business, which accounts for the bulk of its revenue, has slowed in recent months.
Sports betting firms had varying estimates of where Facebook would end up at the close of its first day of trading. Spreadex Limited in Hertfordshire, UK, said clients are speculating shares could end up trading above $56 a share in the first day, having come down a bit in price since the amount of shares slated for sale were increased.
Betting on Intrade, a popular online betting site for political events, was limited, with only about 750 shares changing hands in contracts that bet on a closing price anywhere from $25 to $60. By contrast, more than 200 000 trades have been made on President Barack Obama's chances for re-election.
Some financial advisers have warned their clients against jumping into Facebook right away, but the well-known brand could still attract enough interest to exceed the 458 million shares traded the day General Motors went public after emerging from bankruptcy in 2010.
One UBS adviser initially received calls from 12 clients clamouring to buy shares of Facebook, but over the past couple of weeks, two have changed their minds.
“A lot of people are thrown off by the recent negative stories in the press,” the adviser said, speaking on condition of anonymity. “One guy was worried about General Motors stopping its advertising on Facebook.”
GM said on Tuesday it would stop placing ads on Facebook, raising questions about whether the display ads on the site are as effective in reaching consumers as traditional media.
Overall financial advisers are struggling to manage clients' expectations about what the stock will do and in some cases, if they will be able to get any stock for them.
“People want to just own it because they think it's the next Google and they missed out on that,” said a financial adviser from Wells Fargo Advisors, the brokerage division of Wells Fargo & Company, which is part of the syndicate underwriting the deal.
Facebook has 33 underwriters for the IPO, led by Morgan Stanley, JPMorgan and Goldman Sachs. - Reuters