Facebook IPO occured today (or may occur tomorrow). They plan to raise $5 billion, with the company values at $100 billion. Do you think it is worth $100 billion?
Re: Facebook IPO - overvalued?
Yes, overvalued but when people buy overvalued stuff, it retains price. Remember renren?
Re: Facebook IPO - overvalued?
Unlike other dot coms, facebook has both a long history of making money, and has very large amounts of cash. I don't think think it's overvalued.
Re: Facebook IPO - overvalued?
I don't think its over-valued .. .. If you analyze deeply, you would know that facebook platform is actually more powerful than google's AdSense ..
Re: Facebook IPO - overvalued?
Facebook has tremendous potential to become a cash-generating machine, but can it capitalize on its opportunities?
That’s the question a lot on Wall Street are asking themselves a day after Facebook filed its S-1 IPO prospectus with the Securities and Exchange Commission. The social network boasts an impressively large–and engaged–user base. Yet the company hasn’t fully figured out how to make money off of them.
Investors will be clamoring to get ahold of Facebook stock, with many hoping to get in before the company figures things out and the stock takes off.
“I think Wall Street’s reaction will be quite positive,” said Timothy Loughran, a finance professor at Notre Dame. “Lots of investors want to own Facebook.”
The asset that Wall Street is primarily looking at is the user base. More than half of the 845 million monthly users actually log in to the social network on a daily basis.
The result has been impressive growth in its top and bottom lines. In 2011, the company saw revenue double to $3.7 billion, while its profit grew 65 percent to $1 billion. Over the past two years, its revenue rose nearly fivefold, while its profit more than quadrupled.
“The numbers show clearly that not only is social media not a passing fad, but there’s some real money to be made here,” said Michael Gartenberg, an analyst at Gartner.
Facebook already overvalued?
Facebook’s current financials and fundamentals look solid, but there are questions about its future, said Trip Chowdhry, an analyst at Global Equities.
The financial figures don’t look so rosy to everyone. Loughran noted that its revenue figure equates to roughly $4.39 per active user, which he said was surprisingly low. Assuming that revenue-per-user figure remains constant, if Facebook gets to $3 billion users, it will only be able to generate $13.2 billion–an impressive amount, but not one that justifies a $100 billion valuation.
“That strikes me as a bit expensive given that Facebook already has a sizable percentage of the Earth’s population as active users,” Loughran said.
Chowdhry said that the company should be valued closer to $50 billion to $60 billion, and that investors wouldn’t see much return if they bought in above that level.
It’s about the platform
Still, others are more optimistic that the company will be able to generate more revenue per user down the line. One analyst, who didn’t want to be named because his firm hadn’t cleared him to talk about the company, said a lot of the potential comes from Facebook’s position as an app platform.
Facebook’s finances
Facebook has finally opened up its books. What do you think?
FarmVille and Words With Friends maker Zynga is Facebook’s single biggest contributor of revenue, chipping in 12 percent of the total in 2012, according to the filing. But the potential lies in different apps, services, and business models running on top of Facebook–pieces that go beyond social gaming.
In this instance, Facebook won’t be in the lead, but will help foster the development of these new apps, the analyst said. He believes the “opportunities are immense.”
Facebook noted in its filing that it doesn’t yet run display ads in its mobile app–a problem because an increasing amount of people check in on Facebook through a smartphone app. But that could also present an opportunity down the road as the company taps into another possible revenue stream.
For all of his concerns, Chowdhry acknowledged that Facebook’s ability to innovate on new services and business models has already been impressive.
Challenges to monetization
Facebook will have to tread lightly if it wants to generate more revenue from consumers, which will in part include more ads. There’s the risk that the increased number of ads will clutter up the site and turn users off on usage. How Facebook navigates that issue while boosting its revenue growth will be something Wall Street will need answered.
“Facebook needs to be very careful,” Gartenberg said. “An unhappy user is not an engaged user.”
That’s a problem that MySpace encountered, as it began to post more ads and lose control of the look of its site, leading to Facebook usurping it as the leading social network. Chowdhry warned that the same thing could happen to Facebook if it pushes ads too aggressively.
There’s already an alternate social network in place: Google+. While Facebook is by far the world’s largest social network, Google+ has made big strides since its launch in June.
Facebook, meanwhile, will need to figure out how to run ads on its mobile app if it wants to make any money in that area–which is key as people spend more time on their mobile phones than ever before. But given the small screen real estate, it’s unclear how it can deliver ads without irking people.
Facebook relies on customer data and preferences, which is less useful to advertisers than the search-based data that Google offers. By its nature, a search suggests immediate user interest, which is more valuable to an advertiser. As a result, Facebook can’t get the same kind of advertising dollars that Google commands. That could change if it goes into the search business itself.
The ultimate gauge of Facebook’s value won’t occur for another few months, when its stock gets its initial public offering. Until then, analysts will privately mull over the numbers as the company goes on a road show to drum up investor interest.
It could be a long few months.
Re: Facebook IPO - overvalued?
@kakaballi - I dont know renren - while overpriced stocks may retain their price for a while, eventually, they will reach fair value.
the above article says it all. Even at 3 billion users (half the world's polulation!) the current 100 billion dollar market cap corresponds to 7 times sales!
Right now, the price to sales ratio is ~ 28! If # of users remains the same, Facebook needs to figure out a way to increase revenue per customer by a factor of 12-14!
If the # of users eventualy double from current level, they still have to increase revenue per customer by a factor of 6-7!
IMO, it is overvalued. Google's market cap is $180 billion as a reference point, while Amazon's is ~ 85 billion (all figures from memory).
Re: Facebook IPO - overvalued?
fair value is what people are willing to pay for something. people would buy facebook at huge premium hoping to find a greater fool in future to sell their stock to. fundamentals dont really matter for such buying.
Re: Facebook IPO - overvalued?
I agree that for those who speculate, the greater fool theory holds - sell to the greater fool. I learnt my lesson twice - 2000 tech bubble and 2007 financial bubble. Now I stay away from speculation. Yes, some sure will come out ahead. But when the party stops, there will be plenty of damage done.
Good luck and happy stock picking!
Re: Facebook IPO - overvalued?
One way to answer this question is to look at FB's business fundamentals - 800 Mn + users, 400 Mn+ average active users, 50% margin has advertisers drooling at the prospects. I don't think its overvalued based on fundamentals - however, its future performance will determine if the valuation is correct or not.
Re: Facebook IPO - overvalued?
Welcome back Player. Looks like your kick got a bit higher in your Avatar.
Not sure whay you mean by 50% margin. By that metric, any software company must be a great buy. The 100 billion market cap is 28 times sales and 100 times earnings. It is about 55% of Google's market cap. When you buy a stock, you need to have enough upside potential - I dont see it at hese levels Now if the price drops by 4X after the IPO, it could get interesting as a speculative play(er). (I recall your being an economic expert - so hope you will comment more often!)
Re: Facebook IPO - overvalued?
Gone are the days when 'fundamentals' used to be revenues, earnings, assets, leverage, growth, risk.....
Re: Facebook IPO - overvalued?
kaka - those days are still here and one can still make money looking at fundamentals. I am not saying one cant make money through speculation, but fundamental investing is alive and well.
Analysis of the big 3 - balance sheet, income statement and cash flow statement are as important today as any time in the past.
Focussig on fundamentals would have kept an investor out of the Tech bubble and financial bubble. I did not do so and paid the price. But no substitute for school of hard knocks.
Re: Facebook IPO - overvalued?
The huge potential is there, based on the position and potential, i think the valuation is fair, but at the same time, value can diminish quickly if they make bone headed moves a la myspace.
Re: Facebook IPO - overvalued?
Welcome back Player. Looks like your kick got a bit higher in your Avatar.
Not sure whay you mean by 50% margin. By that metric, any software company must be a great buy. The 100 billion market cap is 28 times sales and 100 times earnings. It is about 55% of Google's market cap. When you buy a stock, you need to have enough upside potential - I dont see it at hese levels Now if the price drops by 4X after the IPO, it could get interesting as a speculative play(er). (I recall your being an economic expert - so hope you will comment more often!)
Thanks Southie :)
I was talking about FB's gross margin - gross profit/revenues which was unofficially pegged at around 50% over the last couple of years. However, even if you look at the net margin in the numbers that have been made public, its around 30% which is pretty healthy. I would say any company that has such healthy margins is a good buy.
Re: Facebook IPO - overvalued?
I noticed that above is a 1 year year chart. Per link below FB opened at 42. Per chart above one year ago FB was at 25. That is a 68 pct drop from IPO price.
yes those who bought at 25 did make a killing. Those who bought at IPO made 62 pct return since IPO date of May 2012. Per link below snp500 closed at 1295 same day. Now at 1960. So 51 pct return. Plus div of 2.5 pct based on that days price. So add 5 pct. So total 56 pct.
A stock’s forward returns always based on price u pay for it. The day we forget that truism we r in trouble as individual investors.
I didn’t expect it to do so well. Granted.
Facebook IPO: Nasdaq ‘FB’ Stock Closes Near IPO Price - ABC News
Re: Facebook IPO - overvalued?
To be honest that was an huge amount and huge differences cause it is onlu $5 billion and it turns to $100 billion isn’t sound weird that they increase it immediately ? in Helsinki i am working as an call center agent and i can say that facebook also help us to get some leads and also for free promotion of business.But i could not say that $100 billion is worth it.
Re: Facebook IPO - overvalued?
In business it is good to go back and revisit your predictions. At the IPO price of 38 I thought fb was overvalued. But several disagreed. And now they are right. FB at 76 is double the IPO price. While Snp 500 in same duration is up 14 pct plus say 1.3 pct dividend. Or 15.3 pct total return.
Let me eat some humble pie.
Re: Facebook IPO - overvalued?
Had a senior moment. I just saw the date of op. As Feb 1. And assumed 2014. This thread opened 2012. Snp500 closed at 1324. Now 1994. So 670 gain. Or 50.8 pct gain. Add 1.3 pct yield. Total return is 52.1 pct. While fb returned 100 pct in same time frame. Still much better than mkt. But margin not as wide as I thought.
Re: Facebook IPO - overvalued?
The Snp500 is exactly at 1994. And FB exactly at 76
Your Arithmetic is bit off. SNP div yield.has been at 2 pct. So in 3 years, add 6 pct. So total return 50.8 plus 6 or 57 pct.
Facebook total return 100 pct. So yes, in 3 years FB at IPO price has outperformed snp500.
For every such tech IPO there are several that go bust. The market has rip roared in last 6 years. So high fliers will fly high. The moment of reckoning will come when markets tank.