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Facebook IPO: Analysts Doubtful As Shareholders Cash In

A $100bn valuation for Facebook would be 100 times its revenue. Analysts are warning small investors away

On by Peter Judge 0

Early investors are planning to cash in more of their Facebook shares, increasing the size of tomorrow’s flotation by 25 percent, whilst analysts are warning that stocks may fall after its long-awaited IPO.

Another 84 million shares, worth up to $3.2 billion, have been added to the shares that will be sold, just before the final price is due to be set later today, and trading begins tomorrow (Friday). The newly-offered shares are from insiders and venture capital firms  who invested early on and the news that they are cashing in is raising jitters amongst some analysts.

Facing facts

Most analysts see the flotation as a media sensation, likely to produce a fast rise on the first day, and then a reduction. “I imagine the shares will enjoy a huge rise on the first day of trading,” said analyst Alan Patrick of Broadsight, in the Guardian. “There are always ‘greater fools’ prepared to buy at a higher price.”

Among the investers selling more shares is Goldman Sachs, which doubled the amount it is selling from13 million to 29 million. Others include DST Global and Tiger Global.

The asking price for the shares has been edging up, with the expected price now given as $34 to $38 per share, previously $28 to $35.

However, advertising on Facebook is down – with General Motors taking away $10 million of adverts on Facebook pages this week, saying the ads simply don’t sell cars.

Evidence for a bubble is in the comparison with traditional businesses. A $100 billion valuation for Facebook would make it worth more than Vodafone ($85bn) although Vodafone has 14 times the revenue that Facebook has.

Facebook would then be valued at more than 100 times its revenue for the last year – an almost unheard of ratio and one which will only make sense if Facebook continues to expand at the rate it has so far, while growing its ability to make actual money, without losing the support of users.

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Peter Judge
Author: Peter Judge
Editor, TechWeekEurope
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