NEW YORK |
Mon May 7, 2012 9:29pm EDT NEW YORK (Reuters) - Facebook Inc CEO Mark Zuckerberg tookquestions about the No. 1 social network's slowing revenue growthand its $1 billion Instagram purchase, kicking off a cross-countryroadshow on Monday to promote its $10 billion initial publicoffering. Wearing his trademark "hoodie" sweatshirt, jeans and sneakers,Zuckerberg fended off one investor who questioned the deal to buyphoto-sharing developer Instagram, an acquisition analysts andmedia said may have been concluded too hastily. The 27-year-old - whose majority control of Facebook worries someinvestors about accountability - replied he would do the Instagramdeal again if he had to, according to attendees.
Hundreds of investors packed the Sheraton Hotel in Manhattan andformed a snaking line around the block outside, watched by policeand clipboard-carrying staffers, a stark contrast to the moremundane nature of the average investor IPO presentation. Facebook aims to raise about $10.6 billion, dwarfing the coming-outparties of tech companies like Google Inc and granting it a marketvalue of up to $96 billion - rivaling Amazon.com Inc's. Facebook's emergence as a cultural phenomenon, whose beginningswere depicted in the fictionalized 2010 film "The Social Network",added a palpable energy and buzz to an event that was policedrigorously. Attendees were asked for multiple forms of identification andcross-checked against a list of names.
Curious passers-by askedquestions to media and investors waiting to spot arriving Facebookexecutives. One investor joked that it should have been held in New York'sMadison Square Garden, home of the Knicks basketball team and astandard venue for rock concerts. "This is unlike anything we've ever seen," said another investorwho was at the event. FROM DORM ROOM TO NASDAQ Observers pointed to Monday's outsized event as a sign thatinterest was high in one of the biggest retail-technology names tohit stock markets in years.
The 8-year-old social network that began as Zuckerberg's Harvarddorm room project indicated an IPO range of $28 to $35 a share onThursday, which would value the company at $77 billion to $96billion. The size of the IPO reflects the company's growth and bullishexpectations about its money-making potential as a hub foreverything from advertising to commerce. Many investors say theyexpect Facebook to raise its offer price range as the roadshowprogresses from New York to other major cities such as Chicago,Boston and San Francisco over the next two weeks. Amid the hoopla of one of the most closely watched IPOs in yearsare persistent concerns about Facebook's longer-term growth andZuckerberg's majority control.
Zuckerberg, who will have roughly 57 percent voting control afterthe IPO, personally forged the expensive deal to acquire mobile appmaker Instagram in a matter of days last month with littleinvolvement from Facebook's board of directors, according to mediareports. Asked about the deal by an attendee at the event, Zuckerberg saidFacebook's management had discussed a possible Instagramacquisition at length in several meetings. Facebook decided to actwhen it saw Instagram's user data cross a "tipping point" fromwhich they believed it would grow significantly, he said. He said Facebook moved quickly to strike a deal when it becameclear that Instagram was open to being acquired. Zuckerberg was accompanied by finance chief David Ebersman, who waswearing a suit and tie, and Chief Operating Officer Sheryl Sandbergin a black dress, sweater and heels.
Investors managed to ask just five questions during the event,including a query about Facebook's potential plans to enter China,the world's largest Internet market by users. Zuckerberg noted that Facebook was blocked in China - as arepopular U.S. websites from YouTube to Twitter. Sandberg said thecompany would be willing to sit down with Chinese governmentofficials and discuss partnerships there. Morgan Stanley banker Michael Grimes took the stage to begin theformal presentation as the audience of investors lunched on Cobbsalad, iced tea and cookies, attendees said.
DEMAND BUILT-IN Facebook set up the event to accommodate slightly more than 400attendees in the hotel's ballroom, according to a person workingfor the hotel's event staff who declined to be named. With 900 million users, Facebook is challenging established Webbusinesses such as Google Inc and Yahoo Inc for consumers' onlinetime and advertising dollars. Longer term, analysts say Facebook needs to develop a way to earnmoney from the increasing number of users who access the socialnetwork on mobile devices such as smartphones. Facebook, which makes most of its money from advertising, beganoffering limited ads on the mobile version of its service onlyrecently.
The average time spent accessing Facebook via smartphone in theUnited States was 441 minutes per unique visitor in March, comparedwith 391 minutes via computer, according to a report released by ITresearch house comScore on Monday. That exceeds the 146 minutes forusers of mobile check-in service Foursquare, and about 114 minutesfor microblogging service Twitter. Susquehanna Financial Group analyst Herman Leung said in a note toinvestors on Monday he expected Facebook's revenue to grow 40percent this year and 33 percent in 2013. He said the $28 to $35 range for Facebook shares was an"attractive" valuation that provided a "compelling entry point" forinvestors. In a separate note published Sunday, Pivotal Research Group analystBrian Wieser put a $30 price target on Facebook shares.
"Our conversations with investors to date suggest that concernsaround revenue growth and the absence of mobile monetization willlinger for some time," Wieser said. But, he added, "we would not be surprised if the stock trades upabove the IPO price on retail interest in the company over the nearterm.".
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