• Sharebar

Facebook’s long awaited IPO is under 2 weeks away and the opinions about it are very mixed. Many people are waiting to get a hold of their share of the “hot company” because they don’t want to miss out on the next tech stock to make them rich. Missing Google’s run and the most recent run of Apple is having people not fully thinking about what the IPO actually means.

Quote:
Facebook Inc. (FB) is betting its growth prospects will persuade investors to pay 99 times earnings for its initial public offering, a higher multiple than 99 percent of companies in the Standard & Poor’s 500 Index.

Facebook is still growing, which is good, but at a decreasing rate. The valuation compared to sales and profits is beyond inflated. Take into account that Mark Zuckerberg will still have a majority vote and could still do what he wants is taking a lot of risk for people willing to invest in the company.

Renren’s IPO was a major disaster and while Facebook might last a bit before it pops I feel like it will happen. The social network that has become so intertwined in our lives that it has many people getting sick of it, myself included. Mark didn’t see Instagram as a great acquisition to buy to integrate with Facebook, he saw a severe threat that did what Facebook couldn’t on a mobile platform.

Everyone is always looking for the next “hot stock” to make them rich, but will people regret investing in Facebook this like they did Groupon? Will it follow the path of Renren or will it actual live up the expectations that people are putting into it?

Article:

http://www.bloomberg.com/news/2012-05-04/facebook-...

Comments (18)

  • WallStreetOasis.com's picture

    $50 BN valuation is rich here in my opinion....

    $90BN valuation is just stupid...UNLESS they have something up their sleeves to MAJORLY juice up Ad $s or increase $s per user metrics.

    Admittedly the site is incredibly sticky / addicting. I still force myself to close my FB tab throughout most of my day so I am more productive. that is saying something....

    What I was a bit shocked about was that their Q1 earnings in 2012 dropped from 2011...right before the IPO. Yeah sure, they can point to investments as the reason for the drop, but a company at that projected P/E should be growing the E despite heavy investment to justify such a high multiple (in my humble opinion). Warning flags of slowing growth are already waving...so the question will be. With a user growth rate of ~10-20% per year, will they be able to grow earnings at 30-50% per year?

    Disclaimer: I'm long LinkedIn.

  • burnsy's picture

    Facebook will pop soon, it is inevitable.
    Myspace was the rage, it popped.
    I give Facebook 3-4 years.

    "All things are difficult before they are easy"
    - Thomas Fuller

  • In reply to protectedclass
    SonnyZH's picture

    protectedclass wrote:
    myspace was the rage? hah. maybe for emo dorks and 15 year old girls.

    This.

    I'm 90s kid and haven't even been on MySpace yet.

    Quote:
    The HBS guys have MAD SWAGGER. They frequently wear their class jackets to boston bars, strutting and acting like they own the joint. They just ooze success, confidence, swagger, basically attributes of alpha males.

  • WSOusername's picture

    i feel like it depends a lot on your time horizon. short term I would maybe entertain the idea of a long (key word maybe), but long term I feel like short is a no-brainer

    GBS

  • Commodity Bull's picture

    LinkedIn closed at $117.30, thus giving it a market cap of 12B, on Friday. It's P/E ratio is 950+ ... If the market is willing to bid up LinkedIn's prices to this they will surely do the same to FB.

    Disclaimer, I think both are highly overvalued.

  • hawkua's picture

    I run some simple numbers on FB a while ago. My takeaway was that you can justify $80B valuation if you assume that FB will grow to 2 billion users in 5 years, will increase revenue per user to $16 and will be trading at approximately current Google's multiples at that time.
    Zuckerberg is a smart guy - wants to cash out when historical numbers still look impressive (despite natural deceleration) while some investors are stupid enough to extrapolate historical data...
    Before someone decides to invest in FB, think about this: how many times have you actually clicked on FB ads? Do you remember what ads you've seen on FB recently?

  • In reply to Commodity Bull
    WallStreetOasis.com's picture

    Commodity Bull wrote:
    LinkedIn closed at $117.30, thus giving it a market cap of 12B, on Friday. It's P/E ratio is 950+ ... If the market is willing to bid up LinkedIn's prices to this they will surely do the same to FB.

    Disclaimer, I think both are highly overvalued.

    Like I mentioned in a previous thread, looking at a P/E of a company that JUST turned profitable and is on a fast growth trajectory is just a dumb way to look at valuation in this case. A much better metric would be to look at EV / Revenue. If you compare EV/Revenue in FB vs. LinkedIn you see a much different story. Let's say FB is valued at $100Bn, that would imply a EV/Rev of about 25x. LinkedIn is currently trading at ~18.4x. Using this same revenue multiple woudl put FB at about a $70Bn valuation which I still think is rich. The reason I think LinkedIn should trade at a premium to FB is that it has a lot more room to grow (only at 160m users vs 900m) and I would argue the $/user potential is significantly higher in a more professional network (advertisers, etc.). Sure they don't have as much info on you as FB, but they also don't have to deal with / store 300 million photos uploaded to FB per day.

    Yes, they both have very rich valuations, I just buy the LinkedIn story much more....

  • WreckEmFinance's picture

    either the Zuck is taking us all for the ride of our lives (not me, I'll avoid that stock like the plague) and knows exactly what's going on (i think so), or he really is as they say focused solely on his "social experiment" and the CFO, IB's et al. are the ones who will hoodwink all the uneducated, greedy investors. oh sure, i'm greedy too, but i'd like to think i'm a little smarter about my greed. though by that statement i may be just as blind as anyone else. well anyway, good for facebook, whether the bubble pops or turns out be a viable going concern for the foreseeable future. facegram, instabook, googlefacegramosoft, foogle-o-gram-o-book.....the M&A possibilities are endless....

    "Everything comes to those who hustle while they wait."
    -Thomas Edison

  • In reply to WallStreetOasis.com
    freroht's picture

    WallStreetOasis.com wrote:
    Commodity Bull wrote:
    LinkedIn closed at $117.30, thus giving it a market cap of 12B, on Friday. It's P/E ratio is 950+ ... If the market is willing to bid up LinkedIn's prices to this they will surely do the same to FB.

    Disclaimer, I think both are highly overvalued.

    Like I mentioned in a previous thread, looking at a P/E of a company that JUST turned profitable and is on a fast growth trajectory is just a dumb way to look at valuation in this case. A much better metric would be to look at EV / Revenue. If you compare EV/Revenue in FB vs. LinkedIn you see a much different story. Let's say FB is valued at $100Bn, that would imply a EV/Rev of about 25x. LinkedIn is currently trading at ~18.4x. Using this same revenue multiple woudl put FB at about a $70Bn valuation which I still think is rich. The reason I think LinkedIn should trade at a premium to FB is that it has a lot more room to grow (only at 160m users vs 900m) and I would argue the $/user potential is significantly higher in a more professional network (advertisers, etc.). Sure they don't have as much info on you as FB, but they also don't have to deal with / store 300 million photos uploaded to FB per day.

    Yes, they both have very rich valuations, I just buy the LinkedIn story much more....

    LinkedIn has its own subscription model as well. FB doesn't make anyone pay for anything directly, thus gets all its revenue from advertising. FB can make a ton of money if they know what you are searching for. If you have been looking for cars the past 72 hours, an advertiser would be glad to put their banner in your news feed or home page (whatever they call it). I think only Google can do that well (maybe Bing too). LinkedIn does it with job postings.

  • freroht's picture

    I personally think that FB and formerly Myspace have gotten so much traction because the adults doing the valuation do not use those services themselves to understand the model. They lose sight on what can make those business models suffer and more importantly they can't tell whether the business is still liked by its users.

    Until now, most FB users are people between 15-25; when you past 25 you tend to use it less. Kids between 15-25 can give us a better valuation of the future of FB.

  • In reply to WallStreetOasis.com
    arant's picture

    WallStreetOasis.com wrote:
    Commodity Bull wrote:
    LinkedIn closed at $117.30, thus giving it a market cap of 12B, on Friday. It's P/E ratio is 950+ ... If the market is willing to bid up LinkedIn's prices to this they will surely do the same to FB.

    Disclaimer, I think both are highly overvalued.

    Like I mentioned in a previous thread, looking at a P/E of a company that JUST turned profitable and is on a fast growth trajectory is just a dumb way to look at valuation in this case. A much better metric would be to look at EV / Revenue. If you compare EV/Revenue in FB vs. LinkedIn you see a much different story. Let's say FB is valued at $100Bn, that would imply a EV/Rev of about 25x. LinkedIn is currently trading at ~18.4x. Using this same revenue multiple woudl put FB at about a $70Bn valuation which I still think is rich. The reason I think LinkedIn should trade at a premium to FB is that it has a lot more room to grow (only at 160m users vs 900m) and I would argue the $/user potential is significantly higher in a more professional network (advertisers, etc.). Sure they don't have as much info on you as FB, but they also don't have to deal with / store 300 million photos uploaded to FB per day.

    Yes, they both have very rich valuations, I just buy the LinkedIn story much more....

    This.

    FB is highly overvalued, IBs will make investors drink the Koolaid while they can.The price should rise to $50+ post IPO hoopla giving FB a completely ridiculous valuation of $135B

    But over the long term [3 years] it should settle back into the $15-20 range giving it valuation of ~$50B which may be justified long term

    So the best strategy seems to be ride the IPO bull wave and then short it over the long term

    Simplicity is the highest form of sophistication ~ Leonardo da Vinci

  • In reply to protectedclass
    burnsy's picture

    protectedclass wrote:
    myspace was the rage? hah. maybe for emo dorks and 15 year old girls.

    True, I wrote that poorly, what i meant was, that Myspace had the potential to be as big as what facebook is now, but couldn't expand. Facebook has achieved more than this but will still one day pop.

    "All things are difficult before they are easy"
    - Thomas Fuller