Facebook IPO May Value Company at $77 to $96 Billion

PHOTO: Facebook CEO Mark Zuckerberg delivering a keynote during the Facebook f8 Developer Conference at the San Francisco Design Center in this Sept. 22, 2011 file photo.PlayKimihiro Hoshino/AFP/Getty Images
WATCH Mark Zuckerberg Interview on 'GMA'

Social media website, Facebook, announced that it is raising as much as $13.6 billion in stock, which would make this the biggest Internet IPO since Google's in 2004, with an offering price of between $28 and $35 a share.

The company filed with the Securities and Exchange Commission on Thursday afternoon, stating it will sell 337 million shares. The share price range could value the company from $77 billion to $96 billion, the Wall Street Journal reported.

In the build-up of events leading to Facebook's initial public offering of its stock, what happens next is the "road show"—usually a two-week, multi-city tour by top management, where potential buyers—big institutions mostly—get the chance to ask questions.

These events are by invitation only. Small fry need not attend. You could donate all your organs at once, right there at the door, and still not get in.

See Facebook's video on its road show. Scott Sweet, managing partner of IPO Boutique, which tracks IPOs, predicts Facebook's road show "will attract a huge amount of attendees at every location. I believe not only will there be standing-room-only, but people will be turned away. Only about 200 people per city get invited."

According to Reuters, the kickoff of the tour could come Monday, assuming Facebook completes the necessary SEC filings. A Monday start would then establish a date of May 17 or 18 for share trading.

The company is legally forbidden from saying much about the tour before the SEC blesses it, so, at the moment, knowing which Facebook managers will hit the road remains a guessing game. Talent likely will include COO Sheryl Sandberg and CFO David Ebersman, says Andrew Tonner, technology and media financial editor for the Motley Fool. The real draw, of course, would be boy wonder CEO Mark Zuckerberg himself. "People expect Zuckerberg to be involved somehow," Tonner says—perhaps making an appearance at one or tour stops.

A financial executive who says he's probably attended "200 or more" road shows says, "These things take on an air of being celebrity-viewings. Does he really wear a T-shirt? How tall is he? It's not so much a need for due diligence on the part of those who attend, it's more: Is any of this real? Do these guys exist?"

Of course in the case of Facebook the company says some 800 million people use its social networking site so this is among the most-known companies ever to issue stock.

As for the questions management likely will be asked, Max Wolff, chief economist of GreenCrest Capital Management, believes it will all boil down to the offering's price.

"People are generally excited about the business model," Wolff allows. "The world is sold on the idea that Faceboook is an interesting and important company. So the big question is going to be, what valuation is worthwhile? Is the company worth between $85 billion and $100 billion? What is a reasonable amount of money to pay?"

Google, Wolff points out, now trades at a valuation equal to about six times its annual sales. Facebook, at that valuation, would be selling for about 16 times sales. "Google is arguably the most dominant, most profitable company on the internet world. Will Facebook, if it's three times as expensive, do three times as well over the next 18 to 24 months?" he asks.

"In order to justify a valuation north of $75 billion, you have to believe that this company can continue growing at a blistering pace," he continues. "The bigger you get, the harder it becomes to maintain that kind of growth. You can grow 5 percent of your height when you're 5 years old. If you do that at 19, you will go to the hospital."

Facebook's biggest road show challenge, he predicts, will be to convince investors that it can do a better job of monetizing its millions of users—a problem he calls "dicey," since to "bombard them with an avalanche of advertising" would be to risk alienating them.

Are roadshows ever fun —either for investors or for senior management?

No, seems to be the consensus.

"It used to be, if you went," says Sweet, who figures he's attended 95 road shows over 39 years, "that you'd get a coffee cup—or something—with the company's name on it. Now they've even cut back on that. You might some small token, some souvenir. But Facebook? Believe me, they know they need to give away nothing."

"It's a pretty intense thing," says an entrepreneur who took his company public in 2009. "A huge amount of effort goes into these things, and sometimes just a hiccup can disrupt the whole thing." He refers to fluctuations in the IPO market itself. "We were looking to go public as early as '08, but then the capital markets slammed shut. We got out in a little window in '09, and then it shut again. Everything's got to fit just right: the story, the timing, the price."

The tours are physically demanding. Says the same entrepreneur, "You go to bed in Kansas City, next day you host a breakfast in Chicago, you get a few hours' sleep in Minneapolis, then you're hosting dinner for 80 at the Carlyle in New York. We had 60 meetings in two weeks."

To keep himself and his fellow presenters awake and sharp, he says, and to stave off boredom, he would make up little games. "One day we decided that every presentation we made that day would somehow have to mention shrimp, hermaphrodites, and a sign of the zodiac."

Facebook execs, if they get bored, can always post things to their walls.