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Two Burning Questions About Facebook’s IPO

 May 03, 2012 05:18 AM
 


(By Louis Basenese) Once rumors hit last year that Facebook was preparing for a public offering – perhaps the largest tech IPO in history – the non-stop questioning began.

"When's the Facebook IPO coming? When's the Facebook IPO coming?"

Unless you were Mark Zuckerberg, you didn't have a clue. But that sure didn't stop everyone from guessing. Talk about annoying.

Thankfully that mystery's largely been solved.

Based on qualified leaks, the company's set to go public in early May, possibly May 18.

That date might get pushed back a little though, into June, because of Facebook's recent dealmaking. The $1 billion acquisition of Instagram and the $550 million patent purchase from Microsoft (Nasdaq: MSFT) will require re-filing some financial documents with the SEC, which takes time.

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Long story short, barring any unexpected snafus, Facebook's IPO will hit before summer officially starts. Which leads us to the next most pressing question…

"What is Facebook's IPO Price Going to Be?"

The company's yet to disclose a pricing range in its SEC filings. And the omission has set into motion the world's largest guessing game. Again.

But fear not. I'm here to tell you Facebook's IPO price. Without guessing.

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You see, since the terms of the Instagram deal included cash and stock, we can use it to get a rough estimate of Facebook's share price.

The social networking giant reportedly paid $1 billion for the photo-sharing startup. And per Facebook's April 23, SEC filing:

In April 2012, we entered into an agreement to acquire Instagram… for approximately 23 million shares of our common stock and $300 million in cash.

If we subtract the $300 million in cash from the $1 billion purchase price, we get the value Facebook assigned to the 23 million shares. About $700 million.

Do the math ($700 million divided by 23 million shares) and we get a price per share of about $30.50. And a total market capitalization of about $78 billion.

The underwriters, of course, are going to try to jack up that valuation. Why? Because Facebook's stock was recently trading on the secondary market as high as $40 per share. Which works out to a market cap just north of $100 billion.

So the question now becomes is Facebook's IPO actually worth $30.50 per share? Or $40 per share?

The answer? Not to this guy!

Based on the latest profit figures, Facebook would come to market at a price-to-earnings (P/E) ratio of 66 to 111.


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