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CEO Mark Zuckerberg at F8 2011, showing is first profile on the original Facebook website

According to an article by Evelyn M. Rusli on the Dealbook / New York Times, Facebook sets the share price for its IPO at between $28 and $35 per share, a pricing that could value the company at around $86 billion at the midpoint of the range, while raising roughly $10.6 billion.

This will be the largest internet IPO, surpassing the Google one’s in August 2004, when the search giant raised US$1.67 billion, and got a market capitalization of more than $23 billion. Facebook’s stock is expected to debut in the market on May 17 or May 18.

CEO Mark Zuckerberg will keep the control of the company, and he is expected to sell 30.2 million shares, worth $951 million (estimate based on the average price per share).

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Mark Zuckerberg showing the history of features on a timeline - F8 2011

Facebook IPO is highly anticipated not only for the record it will set but also for the popularity of the service worldwide; the online social network now counts more than 900 million active users and, according to the New York Time’s article, increased its number of daily active users by 41% in the first quarter to reach 526 million.

Although Facebook IPO will probably be almost 4 times larger than the Google IPO in terms of capitalization and will raise roughly 10 times more funds, Facebook’s current annual revenues (source S-1 filling via Search Engine Watch) of $3.7 billion in 2011 are 10 times less than the $40 billion that the search giant generated last year. To date, Google as a market capitalization of $200 billion, which is only twice the potential valuation of Facebook on the upper price range. (Source Yahoo Finance).

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Mark Zuckerberg's social graph - F8 2011

In my opinion, the pricing is slightly optimistic in regard to the potential revenue growth of the company. By dividing the annual revenues by the number of active users in 2011 (roughly from 600 to 800 million, let’s average it at 700 million), we obtain $5.28 generated per user per year. Even if the entire world population (7 billion) would join Facebook that would limit its revenues to $36.96 billion, unless the company builds new revenue streams in the near future.

At 3 billion active users, which is a more realistic number to estimate, Facebook would hypothetically generates about $15.84 billion – and we do not take into account that new users might come from countries where online advertising pays less than in the markets where Facebook is dominant now.

What is your take on Facebook’s valuation?

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Mark Zuckerberg showing how Facebook will leverage the "Interest graph" of its users - - F8 2011

Filed in Web . Tags: business, Facebook, social network and web.
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