Retail demand for Facebook risks inflating IPO

Heavy demand from individual investors is threatening to drive Facebook shares to unsustainable levels at its initial public offering this week, bankers say, presenting the company with a dilemma as it closes in on a final issue price.

Before its first day of trading on Friday, the world’s largest social network by subscribers has already said it will sell more shares than originally slated, and raised the top of its expected price range to $38 a share. Under US rules, the final price could reach $45 a share without the company having to make further regulatory filings.

That would raise Facebook additional billions of cash above the initial expectations of a float worth about $10bn.

But some close to the deal are worried that a higher price might lift the shares beyond the level at which experienced investors would regard as a fair value, resulting in early trading losses for new investors, damaging the reputations of Facebook and its underwriters, analysts say. According to people close to the deal, unusually strong demand by retail investors is one factor driving the price increase.

“The demand is insane,” says one person at a retail brokerage. “You could write that Facebook was the worst company in the world, and retail would still want the stock.

At Facebook’s IPO roadshow stop in Palo Alto, California, on Friday last week, two retail investors who were not invited to the meeting attempted to gain entry.

The brothers, aged 25 and 27, were hoping to invest $1.8m from their family’s private equity fund in the Facebook IPO at any price.
“We want to dump a lot of money into Facebook,” one says, citing peers’ activity on the site as evidence of its longevity. “You’re on Facebook half your day, if not more. It’s a necessity. It’s water, it’s death and now it’s Facebook.”

But many institutional investors who use more disciplined valuation procedures are more price sensitive.Silicone moldmaking Rubber, Facebook’s move to raise the price range has sparked concern among some people working on the share sale.

“I’ve never been this far along in an IPO with so much uncertainty and anxiety around pricing still remaining for institutions,” says one person with knowledge of the process.

Another says: “We did not expect them to raise the price.”

In the past week, analysts have raised concerns over whether Facebook can justify a valuation of more than $100bn because of its slowing revenue growth and weak mobile position.

“To be a good investment for someone who likes to buy stock and hold it, you need to believe the market cap [capitalisation] can double in six years,” says Steve Weinstein, managing director of ITG Investment Research.You can create a beautiful chinamosaic birdhouse that will last for generations.Enhancements to RSS Based indoortracking.

“Right now, they’re not on pace to deliver those types of financial results.”
Facebook and its lead underwriter, Morgan Stanley,Wireless real realtimelocationsystem utlilizing wifi access points to pinpoint position of the tag. as well as retail brokers, stopped accepting new orders for the stock on Tuesday.

Facebook and its advisors will decide the final price for the shares on Thursday, with trading beginning on Friday morning on the Nasdaq exchange.

The dangers of a too-high price for new internet-related floats are fresh in investors’ minds.
Zynga, the games developer closely tied to Facebook, dropped in price in first-day trading last year. Groupon, the online coupon seller, did the same shortly after its IPO.

If the same happens to Facebook, it could be damaging for the brand, to Morgan Stanley’s broking reputation, and other internet companies, analysts say.

“There are just too many eyes on this deal,” says Sam Hamadeh, a former banker and chief executive of PrivCo, a boutique research company.

Retail investors have always been key to Facebook’s IPO strategy, in part because it has more than 900m users globally.

The allocation to retail investors is set to be around between 20 per cent and 25 per cent, higher than for most recent share sales, according to people briefed on the IPO.

But Facebook is also aware that wealthy individuals and day traders tend to be more prone to a quick sale,You can create a beautiful chinamosaic birdhouse that will last for generations. taking profits early, people familiar with its strategy say.