Report: Facebook IPO to be much smaller - its valuation could soar beyond $100bn

Summary:A smaller number of shares floated in an IPO would help support a higher valuation. It's a controversial strategy used by Groupon.

International Financing Review, a Thomson Reuters publication, reports that its Wall Street sources point to a far smaller Facebook IPO, raising about $5 billion instead of the expected $10 billion.

Facebook readies to file US$5bn IPO, could grow -IFRe

If the report is accurate the relatively small number of publicly traded shares would help support a high valuation. This might be necessary if the value of Facebook in private markets continues to increase before the IPO, which is expected in May 20212.

The small float, however, would increase by the end of the year as insiders and employees become eligible to sell their shares after a 6 month lockup period, and cash in before the holidays, by some estimates, creating more than 1,000 millionaires . A small float would help ensue that Facebook staff are able to sell at a high valuation.

The competition among Wall Street firms to lead the IPO looks to be won by Morgan Stanley, with Goldman Sachs, Bank of America Merrill Lynch, Barclays Capital and JP Morgan in supporting roles, writes Anthony Hughes and Stephen Lacy. The report says that Facebook decided against Goldman as lead because of the huge controversy it caused last year when it botched a large private offering of Facebook shares.

Facebook's "Red Herring" its financial report could be out as early as tomorrow, February 1. It will give prospective investors the first audited look at the company's business. So far, unsubstantiated rumors have discussed 2011 revenues of $3.8 billion and an operating profit of about $1.5 billion.

A small share float is controversial because it can cause volatility in the share price. The Groupon IPO was heavily criticized for having a very small float of about 5% of its shares.

A smaller IPO will increase demand for Facebook shares and therefore its valuation. It will also give Facebook options to increase the number of shares available prior to the IPO while still keeping a tight hold over pricing.

In private markets the company has about a $85 billion valuation. It needs to make sure that its IPO valuation exceeds its private one by a broad margin and the best way to do that is by making sure demand for shares is far higher than supply.

Topics: Banking, Legal, Social Enterprise


In May 2004, Tom Foremski became the first journalist to leave a major newspaper, the Financial Times, to become a full-time journalist blogger. He writes the popular news blog Silicon Valley Watcher--reporting on the business of Silicon Valley. Tom arrived in San Francisco in 1984, and has covered US technology markets for leading comput... Full Bio

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