“How should investors value growth? With Facebook now in registration for an initial public offering, the question is top of mind for investors in technology stocks,” Eric Savitz reports for Forbes.
“Facebook generated $3.7 billion in revenue in 2011, and a cool $1 billion in net income. If the conventional wisdom is right, and Facebook goes public with a $100 billion market cap, that makes the math easy – the company would have a P/E of 100x trailing earnings, or if you prefer, 27x trailing revenues,” Savitz reports. “But not everyone is convinced that Facebook, astonishing as it with close to 850 million users and a rapidly growing revenue base, has done enough to be worth more than, say, Boeing ($57 billion market cap, $69 billion in revenue, $4 billion in profits) [or] Disney ($72 billion market cap, FY September 2011 revenues of $40.9 billion and $4.8 billion in profits).”
Savitz reports, “While Facebook grew revenues 88% in 2011, the company actually grew a more modest 54.7% in the fourth quarter… Apple cranked out December quarter revenue growth of 73.4% versus the same quarter a year ago… In calendar 2011 – not their September fiscal year – Apple had revenue of $127.8 billion, and profits of $33 billion. Ergo, the company is trading at 3.4x trailing revenues, and 13x trailing profits. Back out the $100 billion or so Apple now has in cash, and the valuation drops to 2.6x revenues, and 10x revenues… So, then, the question investors will have to ask themselves is this: is a dollar of revenue or profits from Facebook really 10x more valuable than a dollar of profits from Apple?”
Read more in the full article here.
[Thanks to MacDailyNews Reader “Fred Mertz” for the heads up.]
I still see Facebook going the way of myspace.
And that’s the point. They have 800 million Westerners enrolled. Since we can’t expect China to participate in FB, or some other nations that can match or double that 800 mil, I believe they are close to their maximum user base. I maybe wrong, but they are at the top of their game and maybe that’s why they waited until now to IPO. Now it’s just matter of watching the clock tick down.
You are forgetting that Africa is also on the rise. Slightly smaller population (1 billion) as China but already more than 37 million Africans on Facebook. Internet penetration on the continent is at 11% of population. If the ratio holds, expect another 250 million Facebook users from Africa signing up over next 5 years. Zuck isn’t looking to China for growth, he’s looking where China is looking for growth, and that’s Africa.
Damn. I guess the Nigerian scams will proliferate exponentially. Wonder wonder how much an iPhone costs in Zimbabwe. I guess about 10 trillion Zimbabwe dollars.
Someday the STREET will get it RIGHT but for now, Apple is way UNDERVALUED …..
The STREET just CANNOT BELIEVE Apple is anything but a One-Trick Pony, well maybe two or three, but that is it and like all tricks they loose their shine after time ….
What the STREET has yet to realize is: Apple has many tricks and a long long life with their EcoSystem …. Yea baby, started over ten years ago with iTunes ….
Sometimes I wonder what the market would do if Apple bought Amazon or Facebook. Apple’s financials are far more impressive than Amazon’s or Facebook’s but they get a valuation like a utility.
A purchase would force those investors to face up to the reality of Apple’s earnings. Would they then regress to the mean, by raising Apple’s part of the valuation while reeducing Amazon or Facebook’s part of the valuation?
As much as I hate big acquisitions I’m interested to see how the market would react.
There is a lot of denial among investors. The reality that Apple ushered wasn’t supposed to happen. They’re in a daze.
If Wall Street doesn’t understand Apple, how can they possibly understand FaceBook? Altucher was explaining why FaceBook will be worth over $100 billion, but I didn’t quite understand about how it was going to make most of its revenue. Possibly from advertising or something. I only know he said it has a lot of room to grow as more and more people join. Altucher said it’s unique by being the largest global social database and that there won’t be any competition in the near future. In theory I think FaceBook is a wonderful idea, but I honestly don’t use it because I’m not into that social stuff although I’ve considered making up some super alter-ego just for the hell of it. I have a FaceBook account only because so many sites allow you to link your FB account as a login and it saves the work of having to create another login name and password. I think that if all the stuff that’s on FaceBook can be sorted and processed it would be a very valuable information database.
I’d consider buying a few shares and holding them for a couple of years, but that’s about it. I’d love to see Apple buy FB but I’m sure that’s not going to happen. I think Apple will stay clear of that sort of stuff as there’s no hardware relationship I can see. Meaning, how does buying FB help sell Apple hardware?
I certainly do hear that Apple is valued as a utility company, which makes very little sense. However, this guy Altucher is saying that Apple’s market cap will be close to a trillion dollars by the end of this year which is certainly hard for someone as pessimistic as me to believe. $500 a share does look doable, but $600 and $700 is just too much for me to comprehend considering the way Wall Street treats Apple like crap when it’s far and above every other tech company on the planet.
Facebook is worth something but the metrics are still not sound that can properly measure the value of what they sell. Some investors will make out like bandits on Facebook stock, but I do not think it is something you hold onto very long.
The Street always favors what’s new. The promise of profit (the smell of it) is baked into the numbers. That’s why PEAR stocks have a greater P/E ratio than PEPR stocks, even those with similar BUNs.
The street always favors everyone else except Apple. Look at google still over $600 a share yet Apple makes more money than they do along with everyone else for that matter. Yet Apple’s stock is still less than $500 a share. There’s really something wrong here.
Relative share price has nothing to do with it. Google’s $600 and Apples $470 are totally unrelated.
The answer is simple. A potential investor is going to pay for a stock, no more or no less, than what they are willing to pay, for whatever reason that may be. Despite Apple’s long history as a publicly traded company, and it’s good performance over the years, Apple’s stock is still undervalued. So, you cannot base your predictions on what a stock price, or a company’s value, will be based on history or revenue streams. MDN, lets move on to a topic that’s less speculative.
Facebook is boring now. It’s jumped the shark. And now that they are publicly traded, they will feel pressure to have ever increasing revenues to satisfy shareholders.
Since Facebook is free, that revenue will come from data mining. I am not the customer, but rather the product.
Combine that will me getting bored with FB, I am not optimistic with FB’s future.
I must explain that I have not seen the details of this IPO but the summaries indicate the expected valuation of the company will be around $100B with $5B trading as shares — the rest is under lock up that typically lasts for 180 days. That means the initial shareholders of the shares made available through the IPO will make up about 5% of the total shares outstanding. (Last minute adjustments always take place.)
The public aren’t really able to buy these shares. They are offered to the best clients of the underwriting banks.
However, once the stock is listed on an exchange any of these shares can (and will be) traded to anyone. Because the number of shares is small in this case, the price will jump as the mom and pops try to buy their way into riches.
The winners are the lucky people who can buy in at the IPO price.
The price will probably swing upward rather quickly and rather high. When the lock up expires the bulk of the shares will become freely traded. That will provide a glut and the price will drop.
After the dust settles, the price will be based on the company performance. That is where the problems could arise. The adverts on FaceBook are effective (mostly) and very profitable. However, more and more of the punters are switching to mobile devices to access FaceBook and that’s where we start to get into trouble.
FaceBook has been slow to add mobile support — look how long it took to get an iPad version. One reason is the difficulty in generating ad revenue through the mobile apps. People don’t like them and tend to not use them. What will this transition do to the revenue growth of the company.
The same situation is faced by Google. Why are they getting into Android? Because it helps give them a locked-in solution in the future. Besides, how do you search the information contained in mobile apps? Worse, what do you do when the billions of mobile apps are doing the web searches and stripping your ads out of the results. More legal wars to come, I am sure.
In a few cases, that may be true. However, in general, IPO investments are losers…sometimes major losers. If you bet on an IPO like facebook, then you are betting that the company will be able to monetize its assets to multiply revenue and profits at a very high rate for years to come. Otherwise, you would have been better off investing elsewhere. For every Google there are 1000 or more JDS Uniphases.
With a show of hands, let me see how many of you have ever spent a nickel on Facebook? How much money have you ever paid Yahoo? Just as I suspected.
Now you know what either of those companies are worth. The big boys on Wall St always steal the money from the little boys. Time to grow up.
On average, we spend about $50 per day on advertising. FB probably the best custom tools for direct marketing to the demographic you want. ROI is really good depending on what you are selling.
There are many indicators that Facebook is in decline, some people are just ignoring them. The young and old are dropping out from true participation. Facebook may not fall as fast as MySpace, perhaps more of a steady decline like Yahoo! But it’s coming, absolutely no doubt.
If I was Zuck or investors, I would IPO and get my money out this year too.