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Facebook raised the price-range for its IPO to $34-$38 from $28-$35 late Monday, the Wall Street Journal reports.
This new range values the company from about $92 billion to $103 billion.
Raising the price range on a hot deal like this is common–and part of the IPO pricing strategy.
The underwriters intentionally place a low initial price-range on the company to drum up interest. Then, when the order book is looking strong, they raise the price range to signal that there’s a lot of demand for the stock. This then generally whips up even more more excitement and orders. Sometimes, the process even gets repeated a couple of times.
Facebook’s IPO will likely price at the high end of or above the new range. This will give it a valuation near the $104 billion it was trading for in the private markets when trading was halted a month or so ago.
And then the question will be where the stock trades and settles on the first day of trading.
$104 billion is not a ridiculous price relative to the company’s expected earnings, but it’s high.
Facebook will likely earn $1.75 billion this year and $2.5 billion. So the valuation is about 60X this year’s projected earnings and 40X next year’s.
Those aren’t “bubble” valuations by any means, but they’re high relative to Facebook’s decelerating growth rate and the valuations of other hot tech companies. Apple and Google, for example, are both trading at less than 15X next year’s earnings.
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