As discussed in this analysis, Facebook faces a major challenge in sustaining a super-premium valuation.
The company’s business is decelerating rapidly.
As the chart below shows, over the past year, Facebook’s revenue growth has slowed sharply, from 100%+ to 55% in Q4.
55% revenue growth is impressive, but it’s not nearly as impressive as, say, Google’s growth was at this stage of its development. And it’s not even as impressive as Apple’s growth is right now (an astonishing 73% in the last quarter, off of a vastly larger base).
What’s more, Facebook’s revenue is decelerating fast. Unless something has changed in the business since Q4, revenue growth in Q1 could be sharply slower than in Q4. And that would really begin to hammer the company’s valuation.
For comparison, Apple, which grew 73% in the past quarter, trades at a 13X earnings multiple.
Facebook earned $1 billion last year. For the company to trade at even a $50 billion valuation, let alone the $100 billion valuation that people were talking about a couple of weeks ago, the stock would have to trade at 50X or 100X earnings.
Here’s Facebook’s revenue for the past 8 quarters. The red line is year over year growth:
Photo: Jon Terbush / Business Insider