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  • What is Facebook Worth?

    Posted by David Foster on May 16th, 2012 (All posts by )

    Here’s the S-1.


    Is this company really worth the $100 billion or so implied by the IPO pricing? A few points of comparison: the market capitalization of Duke Energy is $29 billion. Target stores is $36B. Yahoo is $19B while Amazon is $101B and Cisco Systems is $89B. CSX railroad is $22B, Ford is $38B, and General Electric is $194B.


    Do you think a $100B valuation for Facebook is realistic? What strategies and future environments could lead to this number being sustainable or even understated?


    (I don’t have any direct financial interest in Facebook currently, but may do something with the stock at some point, more likely in the short than in the long direction. This post is for sharing of general information and discussion and does not represent financial advice.)

     

    14 Responses to “What is Facebook Worth?”

    1. Mrs. Davis Says:

      Facebook’s revenue product is advertising. If Google stumbles and if the young maintain their allegiance to Facebook through their heavy consumption years, its valuation might prove sustainable. More reasonable is to ask to what extent Facebook’s valuation reflects the continuation of the easy money speculative bubble mentality and the absence of investment opportunities for the immense pool of cash in which the world is awash. I suspect future generations will marvel at the foolishness, irresponsibility and historical ignorance of those responsible for our monetary policy and fiscal discipline. Fortunately this reflects our proximity to an inflection point in mankind’s economic development. But to what?

    2. Jonathan Says:

      The price may make sense if you think of each FB share as an at-the-money call on FB’s future success. The price volatility going forward is likely to be high, and there’s no other way for non-insiders to get a piece of the action. You are going to pay $40 or so for something that in a year could be worth $20 or $80. That’s not such a bad deal if you understand that a large part of the current price is essentially options premium. It’s also a good deal for FB, which has done a great job of building expectations to pump the issue price.

    3. Dan from Madison Says:

      What is Facebook worth? That is definitely the $100bb question. I don’t think it will be worth squat in a few years a la Groupon. On to the next thing.

      I agree with Jonathan, it is a fantastic deal for FB.

      Disclosure – I plan on shorting the sh1t out of this thing after the hubbub dies down.

    4. Bill Brandt Says:

      I think they are the new AOL

    5. David Foster Says:

      Stories on individual investors who are purchasing FB shares demonstrate once again that many people have a hard time understanding the concept of *valuation*….the mentality of quite a few individuals seems to be that if a company’s business does well, then you’re going to do well on the stock, without consideration for the price you buy it at.

    6. David Foster Says:

      Interesting to note that GM has decided to drop about $10MM/yr in Facebook advertising, believing they aren’t getting value for money out of it. They’re continuing to use FB as part of their social media strategy and spending considerable money on it, but it doesn’t sound like any of that money goes to FB.

      There *are* revenue sources FB can pursue other than advertising…already they’re doing payments for those selling on-line game, and I’d think they could expand into person-to-person payments and also person-to-small-business and possibly some business-to-business payments.

      A user base as big as theirs is potentially a tremendous asset; however, many others (I’m looking at *you*, AOL and Yahoo) have found this asset not so easy to exploit in practice.

    7. Jonathan Says:

      Regardless of the value of the stock as determined by FB’s revenue stream, I think the stock may retain considerable risk premium if investors trade it within a wide and volatile range. For example, if it gets bid up to $80 (an arbitrary value) and then falls back, it may stabilize temporarily at a much higher level than would be predicted by revenue calculations. This might happen because the stock retains a strong possibility of being bid up again. The greater the price volatility, the greater the risk premium and hence the share price would be. This pricing dynamic is very similar to that of at-the-money calls.

    8. Robert Schwartz Says:

      FaCeBiLK: 2.0 BiG 2.0 Fail 2.0

      Here is what we know:

      1. Their users don’t trust them.

      2. Advertisers like GM don’t believe their advertising platform works.

      3. They don’t understand mobile.

      4. Their crack design/engineering team is too feeble to design a simple photo APP like Instagram.

      5. Their shareholders are dying to sell out in the IPO.

      6. The valuation is hyperfrothy.

      Via Gerard Vanderleun
      http://americandigest.org/sidelines/2012/05/#a018134

    9. Cris Says:

      Hugh Hewitt, with tongue partially in cheek, suggests that the state of California should simply confiscate Facebook to solve it’s budget problems, instead of stealing from everyone else in the state. There would be less pain all around.

    10. David Foster Says:

      A LinkedIn Today special edition about Facebook.

    11. Bill Waddell Says:

      I say what Robert Schwartz says.

      They really don’t know how to monetarize content that doesn’t belong to them – hence the endless games about privacy as they try to figure out how to sell their user’s confidential content.

    12. Lexington Green Says:

      I met a guy at a party who is a purchaser of Facebook date for marketing purposes. All the stuff that Facebook users like is just bait to get them to puke out valuable personal data that they would never give away in a survey. And they constantly update it. This is a treasure trove to marketers. Sliced and diced marketing surveys — that is Facebooks product. Its users are not its customers. Its users are its inventory.

    13. Trent Telenko Says:

      What Lex Said.

      If you are not paying, you are product.

    14. L. C. Rees Says:

      The information you can obtain from a user just from the interaction between their browser and your website is pretty stunning. Using Facebook’s “Open Graph” to integrate Facebook services such as “Like this on Facebook” or “Login with Facebook” gives you even more. If you are not paying Facebook, you are not only Facebook’s product you are someone else’s product as well.