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6:04pm UK, Friday May 18, 2012
Trading in Facebook shares has begun on the Nasdaq in New York, in one of the most hotly-anticipated US stock market flotations.
After a half-hour delay, the price per share opened at $42 (£26.59), 11% higher than the pre-trade valuation of $38 (£24) in its initial public offering (IPO).
It later fell back towards $38.
The social networking website and its early investors had raised $16bn (£10bn) in the offering, which valued Facebook at $104bn (£65bn), making it the most valuable US company to ever go public.
Facebook 1-Day Share Price Chart
Massive interest in the IPO had led to the firm increasing the number of shares it planned to sell by about 25%, with 84 million more shares – worth up to $3.2bn (£2bn) – being added.
Facebook said current shareholders were now offering about 241 million shares, up from around 157 million shares previously.
Speaking after trading began, Gerard Hoberg, an economist at the University of Maryland, said: “The reaction is a bit cooler than many would have hoped. One reason I think is because it’s a very large offering.
“What I think is going on is you have a lot of bullishness from retail investors, people who use FB, and there’s a lot of those investors creating a lot of buying pressure.
“But professionals who were looking at the numbers behind Facebook had a lot more doubts, and that is cooling the issue quite a bit.”
Mark Zuckerberg, who founded the company in a Harvard dorm room eight years ago, remotely rang the bell at the firm’s California headquarters to open trade on the Nasdaq.
The company’s board members Peter Thiel and James Breyer are among those selling more shares, but Mr Zuckerberg is not increasing the number he is selling.
Investors such as U2 frontman Bono stand to make huge sums, with some predicting the singer would become the richest rock star on the planet when the company floated.
Facebook has more than 900 million users worldwide who log in at least once a month, but it makes only a few dollars per year from each one, chiefly through advertising.
Its effectiveness as an advertising space has been debated, while the firm’s mobile phone platform is thought to need improvement.
A recent survey of 1,250 global investors, analysts and traders, showed 79% of those questioned said Facebook’s valuation was not justified, with only 7% deeming the valuation fair.
Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, noted worries had also been expressed about corporate governance at the company – especially the power still resting with the founder.
It needed to diversify and reduce its “almost pure reliance” on advertising income, and was exposed to changing social trends, he pointed out.
He said: “Around a half of Facebook users access the site from their mobile phones. Converting this traffic into income is perhaps one of the company’s largest, and currently perplexing, challenges.
“Facebook was not conceived in the smartphone era and therefore did not have it in mind as a platform. It has catching up to do and, if possible, without cannibalising its own current income from the PC space.”
Much coverage has focused on the huge fortunes a handful of Facebook’s early friends will make, a group comprising a graffiti artist, a rock star and the college buddies of founder Mark Zuckerberg.
But from this point the story of Facebook could become far more corporately conventional.
Facebook will be subject to the same scrutiny and pressures as any company.
The firm has enjoyed unprecedented success but is based on one idea, the mission to connect people better. Its founders must now show they have plenty more tricks up their sleeves.
Google for instance launched essentially as a search engine but has diversified in many different directions, from cloud computing to self-driving cars.
Optimists say the key to what sets Facebook apart cannot be found in its share prospectus or through spreadsheet analysis of performance figures.
What makes its different is its ability to engage people, to draw them in, make them participate and share their information.