Facebook Valuation Hits $104bn As World Watches IPO

Facebook is launching its initial public offering (IPO) of 421,233,615 shares at $38 per share, meaning the social networking giant has been valued at $104 billion (£65.7 billion).

The sell-off of shares will make Mark Zuckerburg, who is still just 28, one of the richest people on the planet, whilst around 1,000 Facebook employees will become paper millionaires.

Facebook is hoping to raise $16 billion (£10.1 billion) from the IPO, which is due to close on 22 May, after shares begin trading on the Nasdaq this afternoon under the FB symbol.

Analyst fears

Analysts have questioned the extraordinarily high valuation of Facebook, which is now worth more than other tech giants such as Vodafone, which makes 14 times the revenue Zuckerburg’s firm does.

One concern is that Facebook’s advertising model is “relatively immature”. “Facebook is currently finding it difficult to compete with Google’s more mature and more developed advertising platform,” said Phil Harpur, senior research manager for ICT at Frost & Sullivan Australia. “To gain full industry confidence, it will be critical that Facebook spends a lot of time and resources developing its advertising model further.”

Earlier this week, it emerged General Motors had pulled $10 million worth of Facebook ads, saying it was not seeing enough traction on the platform.

“On the flip-side, Facebook’s immature online advertising model, combined with their massive global reach, gives them huge potential to grow for very high revenue growth over the longer term and compete head on with Google in terms of advertising revenues,” Harpur added. “Google on the other hand while still displaying solid growth in online advertising revenues, no longer has the potential for such rapid growth due to its more mature advertising platform.”

Victor Basta, managing director for mergers and acquisitions advisers Magister Advisors, said Facebook would need to generate annual revenue of $30-$40 billion to justify the IPO valuation.

“This is a ten-fold increase over the revenues that it currently generates. The question is ‘where from?’ Advertising is fundamental currently, and Facebook will have to channel ad dollars away from other players and onto its platform to achieve this. Enhanced services to companies would also be a logical step,” Basta added.

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Thomas Brewster

Tom Brewster is TechWeek Europe's Security Correspondent. He has also been named BT Information Security Journalist of the Year in 2012 and 2013.

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