

What's A Fair Value for Facebook Stock? - vamsee
http://www.econmatters.com/2012/05/whats-fair-value-for-facebook-stock.html

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dasil003
I'm not rushing out to buy Facebook, but the arrogance and condescension of
this article is overwhelming:

> _valuing Microsoft (MSFT) when they went to IPO was tricky - back then what
> was going to happen was hard to predict. Valuing Google was a lot easier,
> and valuing Facebook is a cinch._

Right, it's just a _cinch_. The ineffectual ads Facebook has been toying with
are the only endgame. There's no possibility they could you know, _improve_
the ads, or completely overhaul them, or make money from other channels. I
mean the guys who built the biggest, stickiest social network in the world
that destroyed all the myriads before them could never possibly come up with a
fresh idea for how to make money.

Instead let's just do a traditional market analysis so that we can feel very
smug and turn the snark up to max.

~~~
tomgallard
Couldn't you say the same about any company though? "Sure XYZ are doing badly,
but they've got some really smart guys there, all they need to do is come up
with a fresh idea for how to make money"

We can only really judge Facebook on what they are doing now, not a
revolutionary new way of making money which no-one has yet thought up.

~~~
dasil003
No you can't. Facebook is still growing and still innovating. They have more
user data and more user engagement then anyone and they're sinking their hooks
ever wider via social widgets and authentication services. They haven't hit a
wall yet, and there are still many potential areas they are well positioned to
expand into.

Everyone is concerned that they are plateauing, but that's just because of the
tremendous numbers they have. Just because they're running up against the
limitations of human population at this time doesn't mean the product has
plateaued.

------
JamesLeonis
I admit I don't fully understand financial analysis, so I don't understand how
he got to $10. However I do know math and I figure I could do a reasonable
comparison of stock prices. What I wanted was an apples to apples comparison
between FB and GOOG. To do this I figured out what FB's price should be if it
were valued like GOOG.

What I needed to know were the number of shares outstanding, the current stock
price, and their revenues. A simple lookup gives me the first two items, and I
have the last one from the article itself.

To get the values in terms of revenues, I multiplied the number of stock
outstanding with the stock price, and then divided by the revenue. This gets
me the stock to revenue ratio of GOOG.

    
    
        Shares * Price
        -------------- = Stock to Revenue ratio
           Revenue
    

GOOG's equation looks something like this: 326M * 613 / 36.5B ~= 5.475 S:R

Knowing this, I can now start calulating FB's ratio and solve for it's stock
price.

2140M * FBStockPrice / 3.71B = 0.576 * FBStockPrice

Solving for FBStockPrice...

0.576 * FBStockPrice = 5.475, FBStockPrice = 9.4917

Refs:

[GOOG]:
[https://www.google.com/finance?client=ob&q=NASDAQ:GOOG](https://www.google.com/finance?client=ob&q=NASDAQ:GOOG)

[FB]:
[https://www.google.com/finance?client=ob&q=NASDAQ:FB](https://www.google.com/finance?client=ob&q=NASDAQ:FB)

 _TL;DR_ : This doesn't mean anything. I just like math.

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nandemo
Wow. That's a lot of words for what's essentially just a back-of-the-envelope
estimate.

Besides, claiming that the fair value is $10 but you should only buy at $5 is
really odd. You must be extremely risk averse to require a 100%/year return.
And that's after he discounted 30% relative to Google. Also, if predicting
Facebook's financials is easier than it was to predict early Microsoft's, why
should anyone expect returns as large as early Microsoft investors?

I suggest the saner, and much more concise estimate by NYU's Prof. Aswath
Damodaran:

[http://www.businessinsider.com/valuation-guru-facebook-is-
wo...](http://www.businessinsider.com/valuation-guru-facebook-is-
worth-29-2012-5)

------
kryptiskt
I think about it this simplistic way: If Microsoft and Google had the
opportunity to acquire Facebook for $40bn, would they pass on it and risk the
other getting it? Hell no.

So I'd say it's worth at least around $18.

------
mtgx
tl;dr: $10. His advice: don't pay more than $5.

