Facebook has completed the first week of its roadshow appearances ahead of an initial public offering that could value the company at up to $96 billion when it lists its shares on the Nasdaq next week.
Many analysts are bullish about the stock, with Sterne Agee initiating coverage at “buy” and Wedbush Securities assigning Facebook an “outperform” rating, according to the Wall Street Journal. The social network set its price range at $28 to $35 a share. The range was lower than some might have expected, considering that company shares went for $44.10 on secondary exchange SharesPost in March. Now CNBC reports that the company plans to increase that price range based on the demand it saw this week and Reuters reports that the IPO is already “oversubscribed” with eager investors. Then again, Bloomberg’s sources say that demand has been lower than expected.
Executives are expected to continue to meet with investors around the country next week before setting a final stock price on Thursday and floating the shares on Friday. Here is a recap of what happened since Facebook began its roadshow and what effect it might have on the IPO.
Last month, the social network reported revenues of $1.058 billion for the first quarter of the calendar year — a 45 percent increase from the first quarter last year, but 6 percent less than the previous quarter. This worries some investors, and Facebook responded with an amendment to its S-1 filing to confirm that the number of daily active users is currently outpacing the increase in number of ads Facebook shows in part because of increased mobile use and product decisions that reduced the number of ads on some pages. For instance, Timeline shows fewer ads than traditional profiles and pages did. The company says in the filing, “Our culture emphasizes rapid innovation and prioritizes user engagement over short-term financial results.”
Facebook also issued amendments to address its ongoing patent battle with Yahoo. The social network received a letter from Yahoo warning that technology used in Facebook’s Open Compute Project hardware may violate 16 Yahoo patents. So far, Yahoo has taken no further legal action against Facebook, possibly because of the controversy surrounding CEO Scott Thompson’s false academic credentials. Another Facebook S-1 amendment included new information about $796 million in restricted stock units that the company recently granted to employees.
Many investors continue to wonder how Facebook’s monetization efforts will perform on mobile devices, where it so far has shown an immaterial number of ads. The company’s current model for mobile advertising is also limited in that an advertiser cannot pay to reach whichever users they want. With Sponsored Stories, a user must already be connected to a brand — or have a friend that is — in order to see the brand’s content in their feed.
That said, Facebook this week revealed two potential new sources of revenue it is currently testing: paid apps and a way for users to pay to highlight their posts within friends’ News Feeds. These are both limited tests, which the company spokespeople downplayed. Although we’re skeptical about whether the highlight feature will ever expand to more users and if paid apps will be successful, the new App Center seems to be a good move to encourage developers to stay on the platform and get investors to make comparisons between Facebook and Apple.
There have been some ups and downs, with news of a potential FTC investigation into the Instagram acquisition, and some critiques against CEO Mark Zuckerberg for not showing up to some roadshow events and not dressing more professionally when he did. Most of this seems to be overplayed in the media and is not likely to have an actual effect on the company’s IPO.
In the next week, Facebook executives are scheduled to visit Chicago, Kansas City and Denver before two more days of meetings in Menlo Park, Calif., according to PrivCo. There is no word whether Zuckerberg will attend this portion of the roadshow. So far he made an appearance in New York City and in Menlo Park, but did not visit Boston with CFO David Ebersman and COO Sheryl Sandberg. Some have said this was for security reasons. Others believe it reflects Zuckerberg’s disinterest in the financial portion of running Facebook. That could turn off some investors, but it seems there are plenty of others looking to buy in their place.
Assuming the company does not delay the IPO for any reason, it will float its shares on Friday.