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Facebook Announces Pricing of Initial Public Offering

Facebook (NASDAQ: FB) today announced the pricing of its initial public offering of 421,233,615 shares of its common stock at a price to the public of $38 per share.  The shares are expected to begin trading on the NASDAQ Global Select Market …

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Context & Ripple Effects

The path here ran through a deliberate sequence: Facebook signaled its window in late 2011, chose NASDAQ over NYSE in April, and set a $28-$35 range on May 3. Today's $38 print lands above that entire range, and Bloomberg pegs the implied value near $104 billion — a striking step up from the $56 billion valuation at which SecondaryMarket buyers cleared stock back in December 2010.

The final structure tilts toward sellers: a filing yesterday showed insiders cashing in, and the offering was enlarged to as many as 484.4 million shares for the debut. The backdrop is not uniformly celebratory — Reuters reports GM's ad pullback followed a failed pitch from Facebook — while money managers flooded underwriters with share requests during roadshows.

First-order effects

  • Institutional buyers who mobbed the roadshows get allocations at $38 when the stock opens Friday on NASDAQ Global Select Market, with demand strong enough that underwriters upsized the deal beyond the original 421.2 million-share base.
  • Selling insiders lock in liquidity at a mark more than double the December 2010 private-auction valuation, converting paper stakes into cash at the open rather than waiting for a later window.

Second-order effects

  • GM walking away from paid ads on the eve of the debut hands every skeptical buyer a concrete monetization counter-argument, forcing Facebook's bankers to defend the $38 price on growth rather than current ad economics.
  • The pending Instagram acquisition, still held up awaiting regulatory clearance, becomes the first test of how regulators treat a newly public Facebook — and the Flash-bound mobile app, which can't run social games, sharpens scrutiny of whether mobile revenue can justify the multiple.

Third-order effects

  • If the $104 billion mark holds through early trading, it resets the reference price for every large consumer-internet company weighing an IPO — and for the secondary-market funds whose late-2010 entries suddenly look cheap, validating private-market markups.
  • A listing this size pushes Facebook into quarterly-disclosure discipline for the first time, and its answers on mobile ads and acquisitions will effectively write the playbook other pre-IPO social platforms are judged against.

The trend: Consumer web companies are graduating from frothy private auctions to public markets at valuations set by banker-managed price discovery, with the gap between those two marks becoming the story investors trade on.

Related: Facebook · Price realization · Facebook Sets $28-$35 IPO Range · Facebook's latest filing: Insiders are cashing in · Facebook Targeting IPO For Between April and June 2012

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