Facebook IPO valuations
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Compounded revenue growth rate (next 5 years)Operating margin in year 10Sales/Capital ratio (Raising this will mean less reinvestment to get same growth)Cost of capitalComments
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Andrew DaileyToo High45%45%1.5 $145,000,000,000.00
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AswathToo high40%35%211.42%$71,577,000.00
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ATFeasible - GOOG does $25/user/yr in revenue, FB can do $50. 800mm Users = 40bn revenue, 30% Net Profit Margin = 12bn for a P/E of 6-10x 5 years out.50% (Monetization has started only recently so better trajectory than google.)40% (Higher than Google as Facebook is more focused on the core business and not likely to invest in a large number of other products.)1.75 (see previous comment)11.42% throughout.$70,299,000.0052
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Carl H.About right54%211.42%$111,000,000,000.00Growth rate of revenues will be far above user growth-rates. Facebook has the option of incrementally increasing the advertising inventory, but more importantly will be able to raise prices of advertising significantly. This is based on the two factors, namely better targeting options, and therefore higher advertising success. Ad the same time more advertisers will bid for the same slots, increasing the costs per click. Adding to that is the point Alex R mentioned, Macro trends in advertising will make more ad dollars go online, mainly to Google and Facebook. New products like Facebook credits (competing with Paypal) and Facebook's revenues from third parties (like Zynga) will gain in relevance and thereby further stabilize revenues and diversify risk.
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Carson H.Too High30% (with 5% growth for TV)35%1.511.42%$37,000,000,000.00
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DarwisToo High - although we all can see why everybody is up & hype about the value of FB35%35%1.3 (agreed with Varun)15% (I expect that people will believe facebook will almost certainly give consistent returns, but I personally dont think so)$40,655,000.00
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wfNo reward for the risk (very little upside)have to tweak the spreadsheet a little to get at my results... didn't assume stable revenue growth for first five years, overrode for growth of 66% of prior years growth (58% in year one, 38% in year two, 25% in year three, down to the terminal in 10 years)35%1.55% at 10 years$68,000,000,000.00agree with the comments on Google's market being bigger chunk of the internet, disagree on the facebook can't get those other country markets, they can probably buy the knock off competitor at a value that is accreditive to earnings. The lowest value on this sheet is nearly 10 times revenue and 30 times net... they should be able to buy and exploit some smaller businesses for way cheaper than that. Control of a public company in one person's hands is scary to me. If Zuck dies, who has control of the Company? I did 5% chance of failure to account for this and other random possibilities that might greatly impact the future of the Company. I think the lower cap rate prices in the upside possibilities. ETA: revisited the tax rate. Facebook will likely either find a way to shelter some of the worldwide income from high U.S. tax rates or benefit when the corporate tax system is overhauled to correct the companies that aren't paying as much U.S. tax (How many U.S. public corps pay 41% tax?) lowering to 25% raised the value by a decent amount. Also calced an upside value assuming they can slow the growth decline to 25% of prior year's growth (last year was down 40% of previous):$110 billion (also increased sales to capital to 5)... Hard to get to much higher than 100-120 without completely stable or increasing growth, based on saturation, both would seem unlikely.
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HarveyToo high40% (but higher in first 2 years)38%1.513%$75,000,000,000.00
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IsmaelToo High40%35% (assuming it gets to 35% in 5 years instead of 10)1.5 (decreasing it linearly after 5 years until a ROIC of 24% on year 9)10.56% (70% advertising and 30% entertaiment tech)$69,000,000,000.00Positively surprised, but believe that it should have a Zuckeberg discount. Assuming that it will be much more difficult to maintain the high growth rates after 5 years
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JuliaToo high30%30%211.42%$40,623,000,000.00I suppose the pre-IPO pricing is very optimistic because of 1. aggressive growth forecast 2. favourable market conditions for the Company: peers multiplies, lack of interesting investments. Besides the Company mission is global and ambitious (to do the world more open) while there are some concerns (at least at the moment) about FB ability to find new ways to monetization.
However I think Facebook has good perspectives as an advertising company in next 10 years. But should it price so high? I'm not sure.
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LogaCan be justified but lot of variables like sales growth, margins etc., need to go right and there is absolutely no room for error. high risk.45% - assumed it will also evolve into an eCommerce site and so have characteristics of Google and Amazon) 25% - eCommerce typically has lower margins and hence the overall margins are expected to trend lower.210.16% - based on beta for advt business of 1.46 and beta of 1.06 for the eCommerce business. Assumed ration of 75% for advt business and 25% for eCommerce$69,000,000,000.00
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Senith MathewsToo High50%35%1.511.42%$109,000,000,000.00Wont buy. Prefer value investing type opportunities with proven assets (5+yrs of consistent profits)
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Sherlene TanToo high35%35%1.513-15% (Harder for Facebook to monetize its "focused" advertising platform given the controversy surrounding user privacy issues)$60,000,000,000.00
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Siddharth BothraNo margin of safety at stated price42%35%3 (Future capital requirement for growth could be relatively much lower)11.42%$82,820,000,000.00I agree with the comment that Facebook has a real shot at becoming the "winner takes all" company in the social media space. It has such a sizable user base that is almost next to impossible for competitors to emulate. But the extent to which it can monetize this competitive advantage depends on how successfully Facebook navigates the user-privacy landmines and how as a company, it can grow and not lose sight of its vision. Facebook was sucessful in the past because it snubbed online advertising. Trying to grow and profit from the very same thing that made it successful, will be extremely challenging. That said, I would buy Facebook shares. If for anything, just to be a little part of history :)
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0too high, overhyped24.78%35%1.2511.42%$57,095,000,000.00The difference between Facebook and Google is that Facebook is applying to a smaller demographic, those who want to keep track of their life on the internet, than Google, which facilitates the access for anyone who wants to the internet. It is a different product on the on the same channel. Users do not search for 'the world's largest pink flamingo' on Facebook, https://www.google.com/search?sourceid=chrome&ie=UTF-8&q=the+world's+largest+pink+flamingo, unless the Flamingo has a Facebook page and they are friends. Facebook is an interesting company that provides an incredible product to both users and advertisers, but the revenue for Facebook will not be that much larger than Google in the earlier years. gh
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Thomastoo high, next bubble30% (higher in the near future, later lower)25%1,511,42%$28,513,000,000.00in deed, I think, the terminal value should be adjusted down, because we will have a much lower operating margin in the long run
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Varun KhullarTooo tooo High28%(using this number considering competitors to emerge though it is arbitrary)taking ur number but i do think its rather large1.2(don't think investments are going to cheap going forward)11.42% but don't expect the risk free rate to be 2% for 5 years and don't expect it to change so soon in 5 years to 8% ,cost of capital will remain high as acquistions will increase leverage and debt,really don't like the number you have taken sir , bottom beta approach would be much better ,also the typical debt/equity ratio for advertising firm hardly holds ,if we taken debt/equity of facebook then we have higher cost of capital of 13.91% which if i use i get a valuation of $61 billion even if i used ur estimates of operating margin and sales to capital ratio $56,000,000,000.00it can easily go the blackberry way..,revenue multiple is still too large for an investment
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WilliamToo high40%25%112%$34,743,000,000.00I think Facebook has network economy advantage, and could become winner take all. If so, hard to believe that regulatory authorities don't try to commoditize its earnings.
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705025$77,890,000,000.00I was surprised to see that I could arrive at this valuation. Although the target price exceeds the value, small variations in growth expectations and Sales/Capital Ratio have a substantial effect on valuation and explain the differences satisfactorily. I agree with your judgement: If I'm an investor, I like to be treated like an owner.
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25$58,992,975,315.79
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Stable InvestorVery High25%35%-10%)IPO = Its Probably Overpriced. But since FB will in years to come become one of the major authentication service providers (for user details etc), we think people can buy it for the long run.
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$58,992,975,315.79
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$59,496,487,657.89
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