Facebook Prices IPO at $38 a Share; Value of Company is $104 Billion

Facebook Logo 2011

Facebook Logo 2011

The stock will begin trading Friday on Nasdaq under the symbol "FB."

A day before one of the most anticipated IPOs of the Internet age, Facebook said Thursday it has priced its shares at $38 apiece, giving the company an initial valuation of $104 billion, more than the combined value of Time Warner, Viacom, CBS and Yahoo.

The company will raise $18.4 billion, and the stock will trade on Nasdaq under the symbol "FB" beginning Friday.

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Facebook, founded by Mark Zuckerberg and launched in 2004, has been the world's largest social-networking site since it surpassed MySpace in January 2009, according to Nielsen. It passed 10 million monthly unique visitors in the U.S. in November 2006 and in March this year it boasted 152 million uniques, meaning two of every three Internet users in the U.S. visited the site. In other countries, such as Brazil, Italy and New Zealand, the ratio of Facebook-to-Internet users is even higher.

Facebook this week upped its estimated price to $34 to $38 as the IPO became oversubscribed due to high demand, though analysts have been largely skeptical of the rich valuation, noting its revenue is somewhere in the $4 billion range annually thogh growing fast. Some have likened purchasing shares of Facebook on its first day of trading to buying a lottery ticket.

CNBC's Jim Cramer, for example, said that while Facebook's potential and growth rate is "truly staggering," the stock is "inherently overvalued" due to a lack of earnings and the fact that it has no track record as a publicly traded company.

"The question will come down to, which is more able to reach the coveted younger demographic: magazines, newspapers, billboards, television or the Internet identification of a billion people, which is where Facebook is headed," Cramer said Wednesday on his Mad Money TV show.

Victor Basta of Magister Advisors surmised that Facebook's revenue needs to grow tenfold -- to $30 billion-$40 billion -- to justify its lofty valuation.

"The question is, where from?" he said. "Advertising is fundamental currently, and Facebook will have to channel ad dollars away from other players and onto its platform to achieve this."

Along those lines, the company hit a small snag this week when it was leaked that General Motors pulled $10 million in advertising. Facebook executives, in the midst of a quiet period, weren't allowed to defend the company's advertising prowess, but some analysts did so on its behalf, pointing out that it amounted to a fraction of 1 percent of Facebook's revenue and that GM was still spending $40 million with Facebook.

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Brian Wieser of Pivotal Research, in fact, told his clients that GM might have made a show of yanking the $10 million as a way to gain leverage in negotiations with television executives, given that the decision coincided with network TV upfronts.

"We think it's highly probable that GM is attempting to assert its credible ability to walk away to all media owners," he said.

Besides advertising, Facebook is a major player in social gaming and has the potential to rake in money from initiatives involving music and movies. Netflix CEO Reed Hastings, in fact, is a Facebook board member.

Wieser estimates that Facebook will generate $1.7 billion in media content revenue by 2017.

At $104 billion, Facebook sets the record for the highest value for an American company at the time of its IPO, according to The Wall Street Journal. And raising $18.4 billion makes it the second-biggest IPO behind Visa, which raised $19.7 billion in 2008, according to Dealogic.

Some analysts are warning individual investors that the Facebook IPO is reminiscent of the dotcom bubble, which began when Netscape went public in 1995 (when Zuckerberg was 11 years old, as The New York Times points out) at $28 a share and quickly rose to $58. AOL purchased Netscape in 1999 with bubble-inflated shares that it also used to acquire Time Warner shortly thereafter in what's considered one of the worst mergers in corporate history.

More recently, though, Google went public in 2004 at $85 a share, valuing the company at $23 billion; on Thursday, Google shares traded north of $620 apiece, and the company was worth more than $200 billion.

Of the few analysts who have officially issued price targets on Facebook shares, the low is $30, the high is $46 and the average among them is $40, according to Yahoo Finance.

Email: paul.bond@thr.com