Facebook Prices at $38: $FB

Shortly after the close, FB’s 421.1 mln share IPO priced at $38, which is at the high end of the $34-$38 expected price range, to raise gross proceeds of about $16 bln. FB had raised the amount of shares to 421.1 mln from 337.4 mln, and also increased the expected price range to $34-$38 from $28-$35. The lead underwriters on the deal were Morgan Stanley, JP Morgan, and Goldman Sachs.

FB is the world’s largest social networking company. FB has unprecedented reach with over 900 mln MAUs, and penetrating an astounding 10% of the world’s population. It generates its revenue from two primary means: advertising (~88% of rev) and from fees associated with its Payments infrastructure (~12% of rev) that enables users to purchase virtual and digital goods from third party developers. At the moment, essentially all of the revenue generated in this business comes from sales of virtual goods used in social games, most notably from Zynga (ZNGA). Opening up its Payments business to other product & service providers, besides games, is one of FB’s most important growth strategies going forward.

Mobile, of course, is another focal-point for the company and represents an area of significant growth potential. Mobile Monthly Active Users (MAUs) have been growing rapidly, increasing by 69% year/year to 488 million as of March 31, 2012. Its user growth is the good news. The not so good news is that FB has been pretty clear that monetizing this growing mobile base is not going to be easy. In fact, on May 10, in another amended filing, FB warned that “growth in mobile may negatively affect the company’s revenue and results.”

Looking at its financials, in FY11, FB’s rev increased by 88% y/y to $3.71 bln, after growing by 154% in the year before. The growth was fueled by a 39% increase in MAUs and a 48% boost to DAUs. Its operating income jumped by 70% to $1.76 bln. For its 1Q12, FB’s revenue was up 45% annually to $1.06 bln, but down 6% sequentially, and its operating income fell by 2% y/y to $381 mln. FB’s balance sheet is strong with cash & equivalents of $3.9 bln and no long term debt. In terms of valuation, FB’s $38/share pricing gives its a trailing P/S of roughly 28x and a P/E north of 100x.