Facebook to sell 25% more shares

16 May 2012 Last updated at 16:23 GMT Facebook has 900 million users but its income stream is small in comparison to its size Facebook says it will sell 25% more shares than first planned in its flotation in response to strong demand.

The move comes one day after the social networking giant said it would raise the price of the shares by 21% to between $34-$38 a share.

It also comes despite doubts about the profitability of the site, which is largely used for social updates.

Car giant General Motors added to those doubts by saying on Tuesday it would no longer pay to advertise on the site.

However, rival Ford said it would continue its social media strategy. A spokesman said: "You just can't buy your way into Facebook. You need to have a credible presence and be doing innovative things."

Facebook will add about 84 million shares to its initial public share offering (IPO) and will now sell about 421 million shares, up from 337 million, raising $18bn (£11.3bn).

This is still only a small percentage of the entire company, and implies Facebook's full market value is around $100bn, similar to that of internet shopping giant Amazon.

The company makes only around $5 a year per member and has identified mobile devices, phones and tablet computers, as a key area for revenue growth.

But Patrick Moorhead, president of Moor Insights and Strategy, said building that revenue would not be straightforward.

"Mobility is Facebook's biggest challenge in that they don't monetise it currently, but it is where the largest growth is."

He pointed to sites such as Groupon, which offers discounts on goods and services to subscribers, as one potentially profitable sector: "I expect them to target the local deals sector first then tie it in with check-ins.

"I expect them to either buy Groupon and Foursquare, or very quickly build-out these capabilities."

Initial rise?

The extra allotment of shares and the raising of the target price were both moves that were anticipated by analysts.

Mr Moorhead said that despite the increased share allotment and higher price range, he expected the price of shares to rise further initially: "For IPOs like this, they always rise on the first day, dip slightly, then the market readjusts over the next few months."

The actual price of the shares is expected to be revealed on Thursday with open market trading pencilled in to begin on Friday.

If all the shares are sold at the new higher price, the IPO would be the third-largest initial share sale in US history, after the financial giant Visa and General Motors.

The company could add even more shares to the sale as there are more than 60 million additional shares that could be sold to cover excess demand.

The eight-year-old social network has 900 million users worldwide and made a profit of $1bn last year.

The new shareholders will not have much say in how the business is run.

The shares on offer are "A" shares, which carry one vote per share, as is normal.

But the current owners' shares are "B" shares, which carry 10 votes each.

They will control more than 96% of the votes after the public listing, with founder Mark Zuckerberg holding just under 56% of the voting power of the company.

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