Get Real: What Facebook is actually worth?

Jun 6, 2012

Facebook, _world’s second most visited website _after Google and the social network that welcomes almost everyone in our family tree who was born after 1950s, went public more than two weeks ago.

People went crazy about the IPO and they even expected $104 billion valuation would be sustained. Thank god, I wasn’t mad as most of the people and didn’t buy any stocks. I knew Facebook valuation at $104B was not fair, but I didn’t expect the stock prices go down that much right after the IPO.

On May 18, 2012, Facebook went public with the price of $38 per share and today, June 6, 2012 – more than two weeks after, the FB stock is trading at $25.87 per share. A whopping 32% drop! Well, ok, we’ve seen this, but where is it headed?

Henry Blodget of the Business Insider says a fair pricing for Facebook would be around $16 – $24. He bases this guess on the estimated earnings per share (EPS) compared to other big tech companies:

Apple: Trading about 10X of 2013 estimated EPS

Google: Trading about 12X of 2013 estimated EPS

Facebook: Trading between 40X-100X of 2013 estimated EPS

So, then comes the question: Why should the investors pay the premium for investing in Facebook? Okay, it is a company on the roll; it is the hottest tech company, bla bla. The reality is that Facebook’s business is decelerating now, and even with an aggressive guess, a fair share price would be between 20X-30X of 2013 estimated EPS for Facebook. This brings the fair price per share to $16-$24.

Now, my comment on this is that when I think of a >$100B valuation, I immediately consider Google. Now, Google is the company doing the magic, they have kept their pace for years and they are literally ‘changing the world’. They don’t only go about letting people put their information online and use it for ads to make revenue like Facebook. They might make most of their revenue from ads, but with what they make Google actually is pushing the human race forward. They are building driver-less cars, they are taking picture of every single street on the Earth and putting it online so that you can virtually walk around, they are digitizing books, and so on. If you’ve heard Google X Lab, led by the co-founder Sergey Brin, is now on a mission to make dreams true by changing our perception of this world forever. Anyway, a company that has the right to brag about all those is valued around $192B.

Now please tell me, is Facebook worth more than half of Google? I don’t think so. Maybe the quarter. I’m not even sure about that. What I’m sure about is though we should get real and be ready to see Facebook stocks trading about $20 per share.

Enough said.

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