Facebook shares valued at $100bn
18 May 2012
Last updated at 00:35
Facebook founder Mark Zuckerberg met investors in New York in the run up to the flotation
Facebook has priced its shares ahead of one of the most eagerly-anticipated share flotations in recent stock market history.
The social network said on Thursday that it valued shares at $38 (£24) each, and that its shares would begin trading in New York on Friday.
At this price the eight-year-old firm would be worth $104bn (£66bn).
Demand is set to be high; earlier this week Facebook said it would be selling 25% more shares than planned.
But questions remain about the firm’s ability to generate profits and take advantage of mobile phone platforms.
There are also concerns that once the company has to answer to shareholders, there may be a greater emphasis on advertising to generate profits.
Limited say
Earlier this week, the company indicated the price would be between $34-$38 a share, with about 421 million shares up for sale.
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It was in 2004 that a Harvard student called Mark Zuckerberg started a social networking site in his college bedroom.
Eight years on, more than 900 million people use Facebook and its young founder – who still wears a hoodie to work – has convinced investors that his company is the most valuable technology business ever to have offered itself to investors.
Facebook’s revenue comes from advertising – and it’s now worth six times as much as the world’s biggest advertising business WPP.
When trading begins in New York, it’s expected that the shares will rise as small investors rush to get in on the act.
The real question though is whether in a year’s time Facebook will have started to deliver the huge growth in profits that shareholders will expect.
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This would represent one of the highest value share sales, or initial public offerings (IPOs) in US history.
By selling shares at that value, Facebook raised $16bn for itself.
However, the new shareholders will not have much of a say in how the company is run.
The shares on offer are A shares, which carry one vote per share, whereas the current owners’ shares are B shares, which carry 10 votes each.
They will control more than 96% of the votes after the public listing, with founder Mark Zuckerberg holding just under 56% of the voting power of the company.
Mr Zuckerberg, who owns about 25% of the company, stands to gain the most from taking Facebook public. Fellow founders Dustin Moskovitz and Eduardo Saverin will also become paper-billionares overnight, as will Napster founder and former employee Sean Parker.
US venture capital firm Accel Partners and Russian internet investment group Digital Sky Technologies also hold significant stakes in Facebook, while Microsoft and U2 frontman Bono also stand to make a huge profit on their investment in the company.
Revenue growth
The social networking site has transformed the way in which hundreds of millions of people around the world communicate. It is also transforming the way companies advertise to existing and potential customers.
But Facebook’s 900 million users helped the company generate just $1bn in profit last year, and there are concerns about its ability to grow profits in the future.
For while it holds a depth of personal information advertisers dream about, Facebook only generates about $5 a year per user.
This has led a number of commentators to question the company’s valuation.
“Facebook will need to generate annual revenue of $30bn-$40bn in order to justify the likely valuation of the business,” said Victor Basta at Magister Advisors.
“This is a tenfold increase over the revenues that it currently generates. The question is ‘where from?’”.
The potential revenue from online advertising is huge.
“We know our industry is $1tn worldwide,” Martin Sorrell, chief executive of advertising giant WPP, told the BBC.
“We know internet advertising is currently 20% roughly [of the total]. We know people are spending almost a third of their time online in one way or another, so there’s a vast opportunity for Facebook.”
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Sir Martin Sorrell talks to Rory Cellan-Jones about the value of Facebook
Generating greater revenues from this potential market is the first key challenge facing the company, both in terms of its own business model and in the face of strong competition from the likes of Amazon, Apple and Google.
“We’re telling our investors to hold off,” Oliver Pursche, president of Gary Goldberg Financial Services, told the BBC.
“Number one, we don’t know what the guts and the balance sheet of the company looks like yet so that’s a big red flag for us. We want to understand the business before we tell people to invest.”
‘Knife edge’
Facebook has identified mobile devices, phones and tablet computers as key areas for revenue growth, but observers say this will not be easy.
“[Facebook is] the holy grail for advertisers. It holds the minutiae of everybody’s lives, the perfect concoction of information – age, sex and what you like,” technology analyst Ernest Doku told the BBC.
“[But] so many people are engaged for so long, it’s very difficult to lure them away to what you’re trying to sell them.”
The second big challenge is not alienating users while trying to maximise revenue.
“[The company] is balancing on a knife edge between servicing its users and pleasing its investors,” Mr Doku said.
“It has been able put the user experience first and foremost, but now investors are going to want [a return].”
Article source: http://www.bbc.co.uk/news/business-18105608#sa-ns_mchannel=rss&ns_source=PublicRSS20-sa
Clinton Cards to close 350 stores
16 May 2012
Last updated at 17:57
Clinton Cards lost £3.7m in the six months to the end of January
Retailer Clinton Cards, which is in administration, is to close almost half its stores across the UK, leading to the loss of 2,800 jobs.
Adminstrators Zolfo Cooper said that it has “regrettably” decided to close about 350 stores of its total of 784.
The closures include all of its Birthdays-branded stores.
“In the course of this work it has become clear that the business is burdened with an untenable retail estate,” it said.
Clinton Cards was placed in administration on 9 May.
Founded in 1968, it was the UK’s biggest card retailer and before its collapse employed more than 8,000 staff.
In March, Clinton Cards reported a loss of £3.7m for the six months to the end of January and said the outlook for 2012 was worse than previously thought.
It had loans of £35m to banks, which were then sold on its supplier, American Greetings.
While the banks had waived certain conditions for the loans, American Greetings had pressed for repayments that Clinton Cards could not meet.
Clinton Cards has been restructuring its business to try to turn around its fortunes, including closing a number of Clintons and Birthdays-branded UK stores.
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Article source: http://www.bbc.co.uk/news/business-18096654#sa-ns_mchannel=rss&ns_source=PublicRSS20-sa
Facebook raises flotation price
15 May 2012
Last updated at 13:49
Facebook was founded in 2004 and now has 900 million users
Facebook has raised the price at which it hopes to sell its shares from $28-$35 to $34-$38, potentially putting its total value above $100bn (£62.2bn).
The company said strong demand had pushed up the price. Trading in the shares is expected to begin on Friday.
A valuation at this level would make it worth more than the US corporate giants Disney, Ford and Kraft Foods.
The eight-year-old social network has 900 million users worldwide and made a profit of $1bn last year.
If investors buy the shares at the mid-point of $36, Facebook would raise $12.1bn through its planned sale of 337.4 million shares.
Despite the strong interest, a Facebook team is continuing to tour the US with an investor road show, a move undertaken by companies to drum up demand ahead of a sale of new shares.
Facebook is set to list on the Nasdaq and its value will rival Amazon’s current worth of $100bn.
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“Start Quote
The Facebook IPO is a bet on the shape of our digital future”
End Quote
- Read more from Rory
Facebook founder and chief executive Mark Zuckerberg will remain in control of the company even after the flotation, controlling more than 57.3% of the voting power through shares he holds and through voting agreements with other shareholders.
The intense interest in the share issue comes despite doubts about the company’s ability to make steady profits from social networking.
Although Facebook makes money, profits are currently just 1% of the market value implied by the forthcoming flotation.
Last month, Facebook reported its first drop in revenue between quarters for two years.
It has sought to allay those concerns, pointing to mobile as an area for growth that the company will invest heavily in.
Facebook is in the process of buying the fast-growing mobile phone photo sharing app Instagram for $1bn, its largest purchase ever.
The BBC’s technology correspondent, Rory Cellan-Jones, says it is unclear how the company can make money from mobile apps.
Small shareholders
Many private investors are unlikely to be able to buy as many shares as they want.
Major stock market listings of private companies generally have only a small allocation of shares for private investors of up to 20%.
Individuals hoping to buy ahead of open trading must register with a broker, if they do not already have one, and put in a formal request.
The brokers themselves have to wait to see how many shares they will be allocated from one of the leading investment companies underwriting the issue.
In the US, online broker Fidelity, which will be getting its shares from one of the underwriters, Deutsche Bank, says customers should have $500,000 (£312,000) in their accounts and have made 36 trades in the past year to be eligible.
Other companies’ account requirements are a bit less onerous, but still require customers to have made a number of trades and have a substantial sum of money in their accounts.
Even if a customer meets the requirements, there is no guarantee they will get any shares.
Article source: http://www.bbc.co.uk/news/business-18070141#sa-ns_mchannel=rss&ns_source=PublicRSS20-sa