Weak demand for Facebook IPO

Facebook Inc’s initial public offering has so far generated lower-than-expected demand from institutional investors who are concerned about the company’s growth prospects, people with knowledge of the matter said.

Some investors expressed reluctance after Facebook said on May 9 that advertising growth hasn’t kept pace with the increase in users, said the people, who asked not to be identified because the process is private. Facebook is also telling analysts that sales may not meet their most optimistic projections, two people said.

Facebook executives have another week to market the IPO, scheduled to price on May 17, and underwriters are stepping up efforts to drum up interest from large shareholders, one person said.

Facebook, led by CEO Mark Zuckerberg, plans to raise as much as $11.8 billion through the IPO, the biggest in history for an Internet company. Underscoring concerns that growth may taper, 79 per cent of respondents in the Bloomberg Global Poll of 1,253 investors, analysts and traders who are Bloomberg subscribers said Menlo Park, California-based Facebook doesn’t deserve the top-end valuation.

“Expectations on Facebook are way too high,” said Mitsuo Shimizu, a market analyst at Tokyo-based Iwai Cosmo Securities Co.

“Given its fundamentals, the company doesn’t look anywhere cheap in valuation.”

Facebook is offering 337.4 million shares at $28 to $35 each. The shares will be listed on the Nasdaq Stock Market under the symbol FB. Morgan Stanley, JPMorgan Chase & Co and Goldman Sachs Group Inc are leading the sale.

The company plans to sell 180 million shares, while existing owners such as Accel Partners, Goldman Sachs and Digital Sky Technologies are offering 157.4 million shares. Zuckerberg is offering 30.2 million of his 533.8 million shares, and may control 57.3 per cent of the voting power of Facebook’s capital stock outstanding after the offering, regulatory filings show.

Jonathan Thaw, a spokesman for Facebook, didn’t respond to a request for comment. Facebook, co-founded by Zuckerberg in 2004 in a Harvard University dorm room, seeks a valuation at 24 times revenue, compared with five times for Google Inc, according to data compiled by Bloomberg.

Already the company’s growth has shown signs of slackening. Sales climbed 88 per cent to $3.71 billion last year. According to researcher EMarketer Inc, revenue may increase 64 per cent to $6.1 billion this year. That would be the third straight year of slowing growth.