Is Facebook Worth $100 Billion?

[jimmy olsen]

1) This description of facebook seems rather grandiose.
2) How long does facebook get to continue to say that it is just scratching the surface of its commercial possibilities? If those "possibilities" are never acted upon, how does one know if they were ever truly viable?

Even if it just scratches the surface as it's doing now it'll make tons of cash. IIRC when I was watching Bloomberg this morning they said they cleared a cool billion in revenue last year.

[Barrister]

1) This description of facebook seems rather grandiose.
2) How long does facebook get to continue to say that it is just scratching the surface of its commercial possibilities? If those "possibilities" are never acted upon, how does one know if they were ever truly viable?

Even if it just scratches the surface as it's doing now it'll make tons of cash. IIRC when I was watching Bloomberg this morning they said they cleared a cool billion in revenue last year.

Yeah Facebook isn't some late 90s dotcom scam - they are bringing in a ton of money and I think they are profitable already.

The question is simply whether the valuation is anywhere near reasonable.

[garbon]

1) This description of facebook seems rather grandiose.
2) How long does facebook get to continue to say that it is just scratching the surface of its commercial possibilities? If those "possibilities" are never acted upon, how does one know if they were ever truly viable?

Even if it just scratches the surface as it's doing now it'll make tons of cash. IIRC when I was watching Bloomberg this morning they said they cleared a cool billion in revenue last year.

Yeah Facebook isn't some late 90s dotcom scam - they are bringing in a ton of money and I think they are profitable already.

The question is simply whether the valuation is anywhere near reasonable.

I don't really see how that's very different then. In both cases you had a company that was way overvalued.

[Admiral Yi]

I don't really see how that's very different then. In both cases you had a company that was way overvalued.

The difference is that Facebook is worth *something.* 

[Grey Fox]

1) This description of facebook seems rather grandiose.
2) How long does facebook get to continue to say that it is just scratching the surface of its commercial possibilities? If those "possibilities" are never acted upon, how does one know if they were ever truly viable?

Even if it just scratches the surface as it's doing now it'll make tons of cash. IIRC when I was watching Bloomberg this morning they said they cleared a cool billion in revenue last year.

Yeah Facebook isn't some late 90s dotcom scam - they are bringing in a ton of money and I think they are profitable already.

The question is simply whether the valuation is anywhere near reasonable.

I don't really see how that's very different then. In both cases you had a company that was way overvalued.

because the dotcom bubble companies never actually had any success.

[Barrister]

1) This description of facebook seems rather grandiose.
2) How long does facebook get to continue to say that it is just scratching the surface of its commercial possibilities? If those "possibilities" are never acted upon, how does one know if they were ever truly viable?

Even if it just scratches the surface as it's doing now it'll make tons of cash. IIRC when I was watching Bloomberg this morning they said they cleared a cool billion in revenue last year.

Yeah Facebook isn't some late 90s dotcom scam - they are bringing in a ton of money and I think they are profitable already.

The question is simply whether the valuation is anywhere near reasonable.

I don't really see how that's very different then. In both cases you had a company that was way overvalued.

The dotcom bubble had people investing in companies that had no present income, or no business plan.  They were companies that nobody should ever have invested in.  I was reading up on pets.com the other day - the company was loosing money on every bag of cat or dog food they shipped, they sold pet food for one third the price they bought it for!  After they came out with their ad campaign business increased - and they were losing even more money as a result.  They went from IPO to liquidation in under a year.

Facebook apparently is already fabulously profitable.  It's a question of valuation, not a question of having no route to profitability.

[Barrister]

I don't really see how that's very different then. In both cases you had a company that was way overvalued.

The difference is that Facebook is worth *something.*

That is an excellent and succinct way to put it.

[garbon]

I don't really see how that's very different then. In both cases you had a company that was way overvalued.

The difference is that Facebook is worth *something.*

That is an excellent and succinct way to put it.

But it seems to me just that goalpost/stakes are at higher valuations.  Let's say dotcom company valued at 100 million but was really worth 0.  Then you have facebook which might really be worth 5-10 billion valued at 100 billion (or even if we want to be generous 33 billion).  Either way aren't you looking at a) a big discrepancy between actual value and the "valuation" and b) in this case even a bigger cash loss potential?

Unless that return on the 1 billion in yearly revenue justifies pumping in 100 billion worth of investments...

[Barrister]

I don't really see how that's very different then. In both cases you had a company that was way overvalued.

The difference is that Facebook is worth *something.*

That is an excellent and succinct way to put it.

But it seems to me just that goalpost/stakes are at higher valuations.  Let's say dotcom company valued at 100 million but was really worth 0.  Then you have facebook which might really be worth 5-10 billion valued at 100 billion (or even if we want to be generous 33 billion).  Either way aren't you looking at a) a big discrepancy between actual value and the "valuation" and b) in this case even a bigger cash loss potential?

Unless that return on the 1 billion in yearly revenue justifies pumping in 100 billion worth of investments...

Valuations are all about setting the proper multiple.  Most commonly price / earnings, but others exist.

When a company is literally worth nothing though, no multiple no matter how high will make it worth something.  A million times zero is still zero.

[Gups]

But it seems to me just that goalpost/stakes are at higher valuations.  Let's say dotcom company valued at 100 million but was really worth 0.  Then you have facebook which might really be worth 5-10 billion valued at 100 billion (or even if we want to be generous 33 billion).  Either way aren't you looking at a) a big discrepancy between actual value and the "valuation" and b) in this case even a bigger cash loss potential?

Unless that return on the 1 billion in yearly revenue justifies pumping in 100 billion worth of investments...

Facebook would be hugely overvalued at $100bn if its revenues were $1bn.

But as they are $3.7bn with profits of $1.7bn before tax the point doesn't arise.

[garbon]

But it seems to me just that goalpost/stakes are at higher valuations.  Let's say dotcom company valued at 100 million but was really worth 0.  Then you have facebook which might really be worth 5-10 billion valued at 100 billion (or even if we want to be generous 33 billion).  Either way aren't you looking at a) a big discrepancy between actual value and the "valuation" and b) in this case even a bigger cash loss potential?

Unless that return on the 1 billion in yearly revenue justifies pumping in 100 billion worth of investments...

Facebook would be hugely overvalued at $100bn if its revenues were $1bn.

But as they are $3.7bn with profits of $1.7bn before tax the point doesn't arise.

So that change of 3 billion then makes it? I've no idea that's why I'm asking.

[Gups]

It's a P/E of about 28/1 which is high but not outrageously so for a company which has shown rapid revenue and profit growth and shows every sign of being able to continue its expansion.

If it were a mature company, like Shell it would be too high.

[Admiral Yi]

Correct me if I'm wrong Gups, but I don't think P/Es look at total revenue.

[Barrister]

Correct me if I'm wrong Gups, but I don't think P/Es look at total revenue.

P/E, no.  Price / earnings looks at profit.

[Martinus]

If working with valuation expert accountants has taught me anything, it's that when you ask them "How much this thing is worth?", in 9 cases out of 10, their response is "And how much would you like it to be worth?"

GAAP can be stretched enough to arrive at virtually any result.