Facebook flotation makes co-creator billionaire

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Facebook co-creator Mark Zuckerberg pocketed more than a billion United States dollars (£630m) yesterday after one of the biggest US stock market flotations.

The listing valued the company at $104bn (£66bn) – bigger than Amazon or Disney.

The sale of 421m shares at $38 (£24) each is thought to have netted up to $18.4bn (£11.6bn) for the company.

Chief executive Mr Zuckerberg, who created the website in his Harvard University dorm room in 2004, sold about 30m shares, pocketing some $1.15bn (£724.6m).

He will retain a large stake in the company, making him worth an estimated $19.1bn – the 23rd richest person in the world at the age of 28.

One thousand millionaires are expected to be created by the flotation, including a small number of the 100 London-based staff.

Mr Zuckerberg’s reported wealth was about the same as the £12.3bn market value of Royal Bank of Scotland, after its shares fell yesterday.

Investors such as U2 frontman Bono are also thought to have made huge sums, with music magazine NME predicting the float has made the singer the richest rock star on the planet.

James Hughes, chief market analyst at Alpari UK, said: “The share price jumped from $38 per share to a high of $42 in the first 15 minutes of trading.

“However, the real value of Facebook is not likely to be known until the hype of the IPO has died away and investors have been able to digest how the company is going to evolve to be the money making machine many expect it to be.”

Despite the hype and the success of its early trading as a listed company, many believe the stock is overvalued.

A recent Bloomberg survey of 1,250 global investors, analysts and traders found that 79 per cent said Facebook’s valuation was not justified, with only seven per cent deeming the valuation fair.

Facebook’s mobile phone platform is thought to need improvement, while its effectiveness as an advertising space has also been questioned.

These doubts were brought into focus on Tuesday when General Motors, the largest car manufacturer in the US, said it would stop advertising on the site.

Facebook has more than 900 million users who log in at least once a month, but it makes only a few dollars per year from each one, chiefly through advertising.

The site’s revenue last year was $3.7bn (£2.34bn), up from $153m (£96m) in 2007, with the majority earned through advertising.

But social gaming on Facebook was a big money-spinner and there was also potential for further exploitation of data on users to enable more targeted advertising.

Ajay Bhalla, professor of global innovation management at Cass Business School, said: “With its IPO priced in excess of $100bn, Facebook has no doubt been extremely successful in capturing the investor mood at the right time. However, investors cannot bank on the current undisputed position it commands in the social network world.

“The ability of Facebook to reinvent itself will depend not just on having a sticky customer base but also on its capacity to introduce new products.”

And the company’s laid-back management style that sees Mr Zuckerberg wear his trademark hoodie and sandals may also have to change now the company is accountable to shareholders.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said worries had been expressed about corporate governance at the company – especially the power still resting with the founder. Mr Zuckerberg is thought to control more than 50 per cent of the shares in the company as part of agreements with other shareholders.

Trading began under the ticker symbol FB two days after massive interest in the sale prompted the company to boost the number of shares it planned to sell, with 84m more – worth up to $3.2bn (£2bn) – being added to the IPO.

But the entire increase comes from insiders and early investors, so the company will not benefit from the additional sales.

Facebook board members Peter Thiel and James Breyer were among those who sold more shares, but Mr Zuckerberg is not thought to have increased the number he sold.