Thursday, July 14, 2011

Is Facebook Worth $ 100 billion?

A Wall Street Journal article points out that transactions on private marketplaces value Facebook at ~ $ 84 billion and that some think $ 100 billion will be the valuation when it goes public.


How does that possible Facebook valuation compare to other large cap technology-oriented companies?

Company                  | Enterprise Value*  | 2011 Est. Earnings
Apple (AAPL)         |   $ 268 billion           | $ 23 billion
Microsoft (MSFT)  |  $ 188 billion            | $ 22 billion
Oracle (ORCL)         |  $ 153 billion            | $ 12 billion
Google (GOOG)       |  $ 140 billion            | $ 10 billion
Intel (INTC)             |  $ 110 billion            | $ 12 billion
Amazon (AMZN)   |  $ 89 billion               | $ 1 billion
HP (HPQ)                  |  $ 84 billion               | $ 9 billion
Cisco (CSCO)           |   $ 59 billion              | $ 8 billion

Other than the outlier Amazon with its 89x earnings multiple, none of these businesses sell for more than 14x earnings with several still having single digit multiples.

So, with the exception of Amazon, all of the above companies have substantial amounts of earning power to support the sizable valuations.

At this time not much is known about Facebook's financials. This New York Times article from earlier this year said Facebook's revenue was approximately $ 2 billion and had ~ $ 400 million of profit. The year earlier, revenue was more like $ 770 million with profits more like $ 220 million.

A slightly more optimistic take came from this Business Insider article. It claims that fourth quarter 2010 earnings for Facebook was more like $ 250 million with full year 2010 earnings coming in at around $ 600 million.

The article added that Facebook's 2011 projected financial performance is on pace for $ 2 billion of EBITDA (earnings before interest, taxes, depreciation, and amortization) with revenue more than $ 4 billion.

So it looks like Facebook could easily end up with net income well north of the $ 1 billion level in 2011. Spectacular growth but it's still off of a relatively small base. We'll all have better access to financial information on Facebook once the S-1 comes out as the IPO approaches.

Most companies when they go public do not start out as a large cap stock but it looks like Facebook's going to be the exception.

At $ 100 billion, Facebook will have nearly 4x the market valuation that Google had when it went public in 2004.

Adam

Long positions in AAPL, MSFT, GOOG, INTC, and CSCO

Related post:
Technology Stocks

* Enterprise Value = Market Capitalization - Net Cash
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