Photo: Yahoo Finance
There is a lot of confusion about one very important metric for Facebook–the number of shares of stock that are outstanding.This number is critical, because it determines the value the market is placing on the company.
The equation is simple:
The share price X the number of shares outstanding = the market value.
(Yes, if you want to value the business, specifically, you can adjust for cash, debt, and off-balance assets, but the value of the equity is the share price times the shares outstanding).
In any event…
Many, many sources of market data are wrong about Facebook’s valuation.
Yahoo Finance, for example, says that at today’s closing price, $23.70, Facebook is valued at “$51 billion.”
Google Finance says exactly the same thing.
And so do many other sources.
This is incorrect.
These sources appear to be using a share count for Facebook of just north of 2.1 billion. (2.1 billion X $23.70 = $50 billion)
Meanwhile, Wall Street analysts are all over the map. Some analysts are using share counts for Facebook that are under 2 billion. Others are using the same counts as Yahoo and Google: 2.1-2.2 billion. Still others are using the correct share count (per the company) of about 2.74 billion.
The disparity of share counts was making me crazy, so I double-checked with the company today. Facebook confirmed that the correct share count is about 2.74 billion. (This may change on Monday, when the company’s latest SEC filing comes out, but the new count shouldn’t be radically different).
This means that Facebook is currently valued at $65 billion.
Why is there so much confusion about this?
In part because Facebook hasn’t issued a simple 10Q quarterly filing yet. This SEC filing lists the latest share count, which is usually where everyone gets it.
In part because Facebook has a complex capital structure, with different classes of stock and lots of stock and options packaged into Restricted Stock Units (RSUs) that are given to employees.
And, in part, because the IPO prospectus put the pro-forma (post-IPO) share count at 2.2 billion.
I haven’t determined yet exactly what accounts for the difference between this number and the 2.74 billion number Facebook confirmed today, but I believe the difference is the shares and options issued for Facebook’s RSUs. I’ll look into this next week.
(Not to get too wonky, but the “fully diluted” share count, which is the one you should use when you’re trying to calculate the market value, earnings per share, and other measures, fluctuates with the stock price. The “fully diluted” calculation takes into account outstanding stock options, and the number of these that goes into the calculation changes based on the share price.)
The 2.74 billion, by the way, is the share count that everyone was using at the time of the IPO.
You may recall that Facebook priced its IPO at $38 a share–and that this equated to a value of $104 billion.
Well, if you do that maths, you’ll find that that the implied share count was… 2.74 billion.
And now, with the stock at $23.70, Facebook is worth $65 billion.