Make us your home page

Advance trades may hurt Facebook's IPO investors

SAN FRANCISCO — Facebook is already trading like a public company, as insiders and wealthy investors use private marketplaces to buy and sell stock in the social-networking company ahead of its initial stock offering.

The shareholder base has grown to more than 1,000, compared with the 50 to 100 investors most companies have when they go public, according to an estimate by Sam Hamadeh, head of research firm PrivCo. Private purchases pushed Facebook's valuation past $100 billion this month, possibly limiting immediate gains for IPO investors, given that Facebook may seek a $75 billion to $100 billion value.

"Facebook is a blue-chip stock, and it's not even public yet," said Kevin Landis, portfolio manager for the Firsthand Technology Value Fund in San Jose, Calif. Facebook jumped as high as $44 this month in private trading, valuing the company at $103 billion and leaving it higher than when Landis bought stock at about $30 to $31 in October.

While demand may push the stock even higher when Facebook goes public, private trades through channels such as SecondMarket and SharesPost are already making it possible for employees and venture capitalists to cash out.

Facebook, which filed for an initial share sale this month, has yet to set its price range for the IPO. People with knowledge of the matter said earlier this year that Zuckerberg was weighing a valuation of as much as $100 billion.

The private trading may make Facebook's debut more like a secondary offering, where holders sell stock in an already public company, said Barry Ritholtz, CEO of FusionIQ, an equities research firm in New York.

"The people buying now at the IPO price are presuming there's lots of upside. I'm skeptical," Ritholtz said. "There's a lot of smart money agitating for the highest possible valuation, and they don't necessarily have the investing public's best interest at heart."

Insiders and investors with $1 million of net worth and a salary of more than $200,000 can qualify to buy stock on private marketplaces, according to Securities and Exchange Commission rules. In an auction last week on SharesPost, Facebook stock traded for $42, valuing the company at $98 billion.

Widely traded private companies that held IPOs in 2011 traded at about 25 to 30 percent less than their eventual IPO price in the two months before going public, said Ori Bash, a vice president at Pluris Valuation Advisors. Facebook may see a smaller gain because it has been traded more, owned by larger investors and researched more thoroughly than other private companies, Bash said.

"If these private-market trades are truly reflective of Facebook's valuation, there's a possibility that demand for the IPO shares could drive it even higher than its anticipated $100 billion valuation," Bash said.

Advance trades may hurt Facebook's IPO investors 02/24/12 [Last modified: Friday, February 24, 2012 9:14pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Bloomberg News.

Join the discussion: Click to view comments, add yours

  1. UPS relocates express operations from St. Pete-Clearwater to TIA


    TAMPA — United Parcel Service Inc. is switching airports for its express air operations. Beginning in October, UPS will relocate from St. Pete-Clearwater International Airport to Tampa International Airport.

    Beginning in October, UPS will move from St. Pete-Clearwater International Airport to Tampa International Airport. [Associated Press file photo]

  2. Richard Corcoran takes aim at public financing of campaigns

    State Roundup

    TALLAHASSEE — House Speaker Richard Corcoran, R-Land O'Lakes, may not be running for governor — not yet anyway — but his latest idea will get the attention of those who are.

    House Speaker Richard Corcoran wants the Constitu?tion Revision Commis?sion to ask voters to repeal the state’s system of partial financing of statewide elections.
  3. Related Group breaks ground on complex at old Tampa Tribune site

    Real Estate

    TAMPA — When Miami developer Jorge Perez first eyed a 4.2-acre tract on the west bank of the Hillsborough River two years ago, people asked him if he wouldn't prefer to build on the opposite side closer to the downtown core.

    No way.

    From left, Related Group executive associate Arturo Penaa, Jorge Perez, center, founder and CEO of the Related Group, Mayor Bob Buckhorn and Steve Patterson, the President of Related Development dig their shovels  during the groundbreaking ceremony of the 400 unit Riverwalk Manor apartment complex on site of the old Tampa Tribune building on Wednesday. [OCTAVIO JONES | Times]
  4. Eat 3-course meals for $35 at these 100 restaurants for Orlando's Magical Dining Month

    Food & Dining

    In the early 1900s, hotels offered "table d'hote" or "prix fixe" menus as a form of loss leader. Hotels didn't necessarily make money on these lower-priced, multi-course meals, often served at communal tables, but they made up for it on the booze. Prohibition may have contributed to a gradual shift toward a la carte …

    Bulla Gastrobar serves a variety of Spanish and Portuguese dishes.
  5. Plant City farmer hopes robot pickers can save strawberry industry from shrinking labor force


    PLANT CITY — If current trends continue, the region's status as a major strawberry producer will depend in large part on what happens in Mexico.

    Strawberry pickers work during the daytime, when fruit is more likely to bruise. Machine pickers can work at night. The owner of Wish Farms in Plant City is developing automated pickers and hopes to see them at work on a widespread basis in five years. [Times file]