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Facebook shares to trade from $34 as IPO valuation of over $100bn expected

17 May 2012

Facebook is set to announce that shares in the firm will be released at between $34 and $38, which could help it raise as much as $16bn in funding, as it prepares to float on the stock market on Friday, according to numerous reports.

The firm is expected to make the announcement after reports earlier this week said demand for its stock from investors was even higher than predicted, helping it close its books early.

The Wall Street Journal reported that the planned stock price would place a valuation on Facebook of between $93bn and $104bn, as the clamour for the stock has driven the valuation north of the previous $77bn valuation cited a few weeks ago by analysts.

However, while the funding valuations give Facebook reason to be buoyant, analysts have said that the firm still has many issues it must address.

Phil Harpur, a senior research manager for Frost and Sullivan, said that in particular the firm must improve the use of advertising on its site to entice more spending from businesses.

"Facebook is currently finding it difficult to compete with Google's more mature and more developed advertising platform," he said.

"To gain full industry confidence, it will be critical that Facebook spends a lot of time and resources developing its advertising model further."

He added, though, that Facebook's "immature online advertising model, combined with their massive global reach" could mean the firm could emerge as a serious challenger to Google for advertising revenues.

Victor Basta, managing director of mergers and acquisition consulting firm Magister Advisors, added that Facebook would have to work hard to match the hype around its valuation in real-terms.

"Facebook will need to generate annual revenue of $30 to $40bn in order to justify the likely IPO valuation of the business. This is a 10-fold increase over the revenues that it currently generates. The question is "where from?", he said.

"Advertising is fundamental, and Facebook will have to channel ad dollars away from other players and onto its platform to achieve this."

The challenge to increase advertising on the site took on extra prominence this week after General Motors announced it would be withdrawing spend of around $10m after it claimed that advertising on the site doesn't work.

Basta said Facebook may also look to increase its relevance to enterprises by offering a dedicated business version of its platform.

"Facebook can be at the heart of employee-to-employee communication and collaboration. A business like Yammer, which operates a private social network service, is a good model for what 'Facebook For Companies' could evolve into," he suggested.

The flotation will cap a tumultuous few days for Facebook's top staff, with chief executive Mark Zuckerberg slated for his refusal to wear professional business attire and co-founder Eduaro Saverin renouncing his US citizenship in a likely tax dodge.

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Dan Worth

Dan Worth is the news editor for V3 having first joined the site as a reporter in November 2009. He specialises in a raft of areas including fixed and mobile telecoms, data protection, social media and government IT. Before joining V3 Dan covered communications technology, data handling and resilience in the emergency services sector on the BAPCO Journal

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