Bloomberg News

Facebook IPO Overvalued at $96 Billion in Global Poll

May 11, 2012

A Facebook Inc. IPO announcement flag flies outside of JPMorgan Chase & Co. headquarters in New York on May 4, 2012. Photographer: Peter Foley/Bloomberg

A Facebook Inc. IPO announcement flag flies outside of JPMorgan Chase & Co. headquarters in New York on May 4, 2012. Photographer: Peter Foley/Bloomberg

Facebook Inc. (FB:US), seeking as much as $96 billion in its initial public offering next week, is overvalued at that price, according to a Bloomberg investor poll.

Underscoring concerns that growth may taper for the world’s biggest social network, 79 percent of respondents in the Bloomberg Global Poll of 1,253 investors, analysts and traders who are Bloomberg subscribers said Facebook doesn’t deserve a valuation so high.

While Facebook’s communication and photo-sharing tools have helped it amass 900 million users, the Menlo Park, California- based company may be vulnerable to startups that can win over Web surfers with new, competing social media sites. At the high end of a projected range of $28 to $35 a share, Facebook would be valued at 99 times its earnings, a higher multiple than 99 percent of companies in the Standard & Poor’s 500 Index.

“It’s overvalued at that price,” said Filippo Garbarino, who oversees $50 million at Frontwave Capital Ltd. in Chiasso, Switzerland. “Investors are becoming more selective and there are quite a few fallen angels around, like Netflix. Those who buy Facebook at these levels are more speculators than investors.”

Facebook, co-founded by Mark Zuckerberg in 2004 in a Harvard University dorm room, seeks a valuation at 24 times revenue, compared with 5 times for Google Inc. (GOOG:US), according to data compiled by Bloomberg.

Weaker IPO Demand

Only 7 percent of those surveyed said Facebook was properly valued, while 3 percent said it was undervalued. Among respondents to the May 8 poll, 11 percent said they have no idea how Facebook should be valued.

The IPO has so far generated lower-than-expected demand from institutional investors who are concerned about growth prospects, people with knowledge of the matter said yesterday.

Already the company’s growth has shown signs of slackening. Sales climbed 88 percent to $3.71 billion last year. According to researcher EMarketer Inc., revenue may increase 64 percent to $6.1 billion this year. That would be the third straight year of slowing growth.

Chief Operating Officer Sheryl Sandberg and other executives, now traveling across the country to pitch the IPO to prospective investors, have said one of the most promising areas of growth for Facebook is in the area of mobile advertising. Of the people who access the site each month, 488 million did so on mobile devices in March, Facebook says in regulatory filings (FB:US).

Teens on Tumblr

Even gains in mobile don’t always translate to ad growth. Increases in daily users outpaced advertising growth in the second quarter as more members accessed the site from mobile devices, Facebook said in a May 9 regulatory filing.

Larry Yu, a spokesman for Facebook, declined to comment.

Luke Rasnake, a senior vice president of fixed income sales at RBC Wealth Management, is among investors who say Facebook is overvalued. He formed his view by watching his daughters use social media. The girls, aged 12 and 14, have started using sites like Tumblr to interact online, he said.

International investors are more skeptical than those on Facebook’s home turf. Of those surveyed outside the U.S., 82 percent said Facebook was overvalued. That compares with 74 percent in the U.S. Facebook is getting an increasing share of its sales from outside North America. The U.S. and Canada made up half of revenue in the first quarter, down from 58 percent in 2010, amid rapid growth in areas including Germany, Brazil, Australia and India.

Room for Growth

Zuckerberg, 27, and other executives are working to drum up interest in the shares by touting gains in daily active users, which increased 41 percent to 526 million in March, and increases in user engagement. Users generated an average 3.2 billion “Like” postings and comments a day in the first quarter.

The message is getting across. Some investors will rush to the stock just because of the site’s popularity, said Simon Lee, a research analyst at Navy Federal Credit Union, who said in the survey that the company is undervalued.

“It’s just impossible to say in the Internet industry how much farther a company can grow,” Lee said. “Facebook still has a lot more room, and there will be a lot more demand than supply for their stock.”

Only 3 percent of the investors polled were less than 25 years old, while the largest portion, 36 percent, were between 35 and 44 years old. Andy Krystal, a 24-year-old research analyst at Royal Capital Asset Management Inc. in Toronto, said older investors may not be regular users of the site.

“They may not appreciate the value, whereas I use it all the time to check on friends,” said Krystal, also a respondent.

Biggest Internet IPO

The company and its holders plan to sell about 337.4 million shares in the offering. At the high end of the range, the IPO would raise $11.8 billion, making it the largest initial share sale on record for an Internet company. The shares will be listed on the Nasdaq Stock Market under the symbol FB.

The IPO would dwarf the 2004 IPO of Google, the world’s most valuable Internet company. Google’s offering, the same year Zuckerberg helped found Facebook, raised $1.9 billion and valued the company at about $23 billion. Mountain View, California- based Google has a market value of $200.3 billion.

In January 2011, 69 percent of investors said Facebook was overvalued at $50 billion. The Bloomberg Global Poll was conducted by Selzer & Co., a Des Moines, Iowa-based firm. It has a margin of error of plus or minus 2.8 percentage points.

To contact the reporter on this story: Sarah Frier in New York at sfrier1@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net


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Companies Mentioned

  • FB
    (Facebook Inc)
    • $76.08 USD
    • 1.50
    • 1.97%
  • GOOG
    (Google Inc)
    • $579.95 USD
    • 6.85
    • 1.18%
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