FACEBOOK Inc. will increase the size of its initial public offering (IPO) by 25 percent, a source familiar with the matter said, and could raise as much as US$16 billion as strong investor demand for a share of the No.1 social network trumps debate about the company’s long-term potential to make money.

    Those concerns over revenue growth were underscored earlier Tuesday, when General Motors (GM) said it planned to pull out of advertising on Facebook.

    Facebook, founded eight years ago by Mark Zuckerberg in a Harvard dorm room, will add about 85 million shares to its IPO, floating about 422 million shares in an offering expected Friday, the source said, declining to be identified because the information was confidential.

    The expanded size, coupled with Facebook’s recently announced plans to raise the IPO price range, would make Facebook the third-largest initial share sale in U.S. history after Visa Inc. and GM. Facebook declined to comment on the increased IPO size, which was first reported by CNBC on Tuesday.

    The social networking company is drumming up massive demand for the offering even as slowing revenue and user growth spur questions about the long-term Facebook story.

    “This is much more a spectacle, a media event and a cultural moment than it is an IPO,” said Max Wolff, an analyst at GreenCrest Capital. “This is not a game of models and fundamentals at this point.”

    GM’s announcement, while ill-timed, should not seriously hurt Facebook’s IPO reception for now as it may not be representative of advertisers’ overall attitude, said Brian Wieser, an analyst with Pivotal Research Group. “The demand for the IPO probably won’t be affected materially by this,” he said, noting, however, there were probably a lot of calls between underwriters and investors following GM’s announcement.

    The IPO, Silicon Valley’s largest, eclipses the roughly US$2 billion debut by Google Inc. in 2004.

    Facebook raised the target price range to US$34-US$38 per share in response to strong demand, from US$28-US$35, according to a Tuesday filing. That would value the company at US$93-US$104 billion, rivaling the market value of Internet powerhouses such as Amazon.com Inc., and exceeding that of Hewlett-Packard Co. and Dell Inc. combined.

    The increased price range made it very unlikely that Facebook shares would double on their trading debut as they might have if the company had come out at the low end of its initial price range, Wolff said. He expects a first-day gain of about 10 percent.

    Before the IPO size was increased, Facebook would have raised about US$12.1 billion based on the midpoint price of US$36 and the 337.4 million shares on offer originally.

    At this midpoint, Facebook would be valued at roughly 27 times its 2011 revenue, or 99 times earnings. Google went public at a valuation of US$23 billion, or 16 times its trailing revenue and 218 times earnings. Apple Inc. went public in 1980 at a valuation of 25 times its revenue and 102 times earnings.

    Facebook’s IPO comes as some investors worry the company has not yet figured out a way to make money from a growing number of users who access the social network on mobile devices such as smart phones. Meanwhile, revenue growth from Facebook’s online advertising business, which accounts for the bulk of its revenue, has slowed in recent months.

    With some 900 million users, it had US$1 billion in net income on revenue of US$3.7 billion in 2011.(SD-Agencies)