Facebook was just valued at ~$103 billion in a final private-market trade before the IPO.
The stock sold on SharesPost at a value of $44.10 per share. Using the 2.33 billion fully diluted outstanding share count cited in Facebook’s IPO prospectus, that equates to a value of just under $103 billion.
That’s a lot.
It’s 103X Facebook’s earnings last year, which were $1 billion.
It’s about 70X this year’s estimated earnings of $1.5 billion (my estimate).
It’s about 50X next year’s estimated earnings of $2.25 billion (my estimate).
To put those multiples in perspective…
Google, another big, hot tech company, trades at about 22X last year’s earnings, 18X this year’s estimated earnings, and 15X next year’s earnings.
Apple trades at about 17X last year’s earnings, 15X this year’s estimated earnings, and 12X next year’s estimated earnings.
Now, Facebook’s earnings multiples aren’t crazy…as long as Facebook continues to grow extraordinarily quickly. And the challenge there, of course, is that Facebook’s revenue growth has been decelerating rapidly (see chart).To put the $103 billion market cap in more perspective, it’s about 1/2 of Google’s market cap.
Facebook’s revenue, meanwhile, is less than 1/10th of Google’s revenue.
Facebook’s revenue, in fact, is about 1/3rd of Google’s free cash flow.
So at that valuation, Facebook investors are really counting on some massive cash flow growth in future years.
And this is after Facebook’s CEO Mark Zuckerberg has clearly said that Facebook’s business is designed to support its social mission, and not vice versa.
Of course, Facebook appears to be just at the beginning of “monetizing” what will soon be more than 1 billion global users.
In addition to the products it has already rolled out, Facebook could well launch other huge products in the future, such as a search engine that competes with Google, or a distributed ad network that competes with Google.
With respect to both of those businesses, Facebook’s vast number of users and vast network of “like” buttons all around the Internet could prove to be major competitive weapons.
I talked to one Facebook shareholder recently who admitted that “the stock already looks rich.” But he also believes that Facebook has grossly underinvested in its monetization over the last few years and that even a little more focus on this could produce huge results.
As an example, the investor described the potential for a global web-wide ad network that would compete squarely with Google’s AdSense business, which itself is a $10 billion business.
“Post-IPO,” the investor said, referring to the ad network story, “if you lay that bad-boy out there, that’s something that investors could really get behind.”
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