Is Facebook Worth $100 Billion?

[Martinus]

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.

That's still in the area of 30xEBITDA, which is pretty insane.

[PJL]

Indeed, P/E's is market cap divided by profit. So more like 59 than 28. Which seem stupidly high for any company, though less so if profits are expected to grow very quickly.

[Martinus]

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.

I think it's quite outrageous, to be honest. 15 x EBITDA is considered optimistic but acceptable. That's twice that amount.

[Barrister]

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.

That's still in the area of 30xEBITDA, which is pretty insane.

I thought EBITDA had gone out of fashion these days.

[Martinus]

My private equity clients still use it.

[Barrister]

My private equity clients still use it.

Not challenging you on it or anything, but I tend to associate EBITDA with the whole late 90s dotcom bubble - a rather misleading metric people have moved away from.

[mongers]

No.

My 'evidence' this stolen from another forum:

The writing is on the wall... #

Andrew Moore said on Thursday 2nd February 2012 15:25 GMT

My 10 year old daughter described someone yesterday as being 'so lame, she has a Facebook page'.

Zuck better sell those shares of his sooner rather than later...

Nice! #

5.antiago said on Thursday 2nd February 2012 15:30 GMT

Haha! Really? That's funny

It's not that I'm *massively* anti-FB, just that it seems so obvious that websites like this will simply go out of fashion. Being cool builds the crowds, the crowds make it mainstream, mainstream makes it uncool.

Just so long as we don't have to bail out any investment banks that buy FB shares

Same here #

Uncle Slacky said on Thursday 2nd February 2012 16:10 GMT

My younger daughter (13) hasn't bothered to join - she texts her immediate friends anyway, and she corresponds with the more remote ones by email. Elder daughter is on FB but has been keener on G+ on late. Her presence on both is mainly in order to plug her own self-built website & merchandise, however.

EddieD said on Thursday 2nd February 2012 16:42 GMT

Similar here - my 13 and 18 year old nieces have practically abandonded Facebook in favour of BBM - which might explain the Q4 surge in blackberry shipments in the UK

[Admiral Yi]

While we're talking about accounting, whatever happened to Alfred Russell?

[Berkut]

There is no question that the value of FB is not driven by current revenue or earnings, but by their potential. So talking about current EBITDA or P/E doesn't really make much sense. Those are valuation metrics for traditional companies that expect traditional growth models over the short to mid term.

If FB is worth anything "special", they are worth, well, a lot. They have a truly unique position, not just in their market, but in human commercial history. What is the value of a company that has as its customer base 1/5th of the population of the planet, with every expectation that that fraction will grow over time?

Should we value them based on the possibility that in another ten years they could have half the population of the planet as their customer base? What would that be worth?

What ways of leveraging that penetration are going to come about that haven't even been thought up yet?

FB is "worth" $100 billion because the possibility that it is a truly "special" company that *might* be able to leverage their penetration to truly astounding profitability. Even if they fail to do so, the return if they do makes it a compelling investment.

[Admiral Yi]

I would quibble with describing 1/5 of the world as their "customer" base.  Customer usually means someone who pays.  They have a lot of users who don't directly contribute any revenue.

[Berkut]

I would quibble with describing 1/5 of the world as their "customer" base.  Customer usually means someone who pays.  They have a lot of users who don't directly contribute any revenue.

Certainly a fair point, but it just illustrates why it is so hard to really evaluate their worth. Sure, am *I* a customer? I've never once clicked on an ad, on the other hand, I am a reason why those who do pay them are willing to do so.

The problem is that there really isn't a way to define what I am to them - clearly I am something, and something special to them that nobody else has (Google is the only thing that comes close, and it isn't that close).

We can agree that they have a user base that is 1/5th of the world population though - and that is certainly something special. How special? Dunno, really.

I think they are worth it because I don't even think we've figured out the ways in which you can extract revenue from a user base like that. Hell, 5 years ago nobody thought that Farmville/Thisville/Thatville would be a means of making millions of dollars, right?

[Admiral Yi]

If I owned Facepalm stock I would be screaming at Zuckerberg to charge companies that maintain a presence on the site.

How ironic that a jude is not interested in profit.

[PJL]

Facebook users aren't their customers. They've merely created a market for others to advertise their wares to. Simlarly with Google. Both are more like owners of a shopping mall or a stock bourse than an actual retailer.

Amazon OTOH would be classified as a retailer (or more accurely internet mail-order company).

[DGuller]

There is no question that the value of FB is not driven by current revenue or earnings, but by their potential. So talking about current EBITDA or P/E doesn't really make much sense. Those are valuation metrics for traditional companies that expect traditional growth models over the short to mid term.

If FB is worth anything "special", they are worth, well, a lot. They have a truly unique position, not just in their market, but in human commercial history. What is the value of a company that has as its customer base 1/5th of the population of the planet, with every expectation that that fraction will grow over time?

Should we value them based on the possibility that in another ten years they could have half the population of the planet as their customer base? What would that be worth?

What ways of leveraging that penetration are going to come about that haven't even been thought up yet?

FB is "worth" $100 billion because the possibility that it is a truly "special" company that *might* be able to leverage their penetration to truly astounding profitability. Even if they fail to do so, the return if they do makes it a compelling investment.

How much FB stock do you own, Berk?

[CountDeMoney]

The fuck does the guy have against Cracker Barrel?

That's what the fuck I wanna know.