Thursday, September 8, 2011

Facebook's 1st Half Revenue Doubles to $ 1.6 Billion

This Reuters article says Facebook's revenue doubled to $ 1.6 billion in the 1st half of 2011.

Net income was almost $ 500 million over the same period.

Estimates of the previous year's earnings have ranged from $ 400-600 million so it appears that Facebook has roughly doubled its earning power year over year.

Some expect when Facebook goes public early next year its valuation will approach $ 100 billion.

Is Facebook Worth $ 100 billion?

To put that $ 100 billion valuation of Facebook in perspective, the combined enterprise value* of Dell (DELL) and Cisco (CSCO) is ~$ 80 billion.

Combined current earnings of Dell and Cisco:  ~$ 12 billion

So a 6.7x multiple of earnings.

Facebook's estimated earnings: ~$ 1 billion

A 100x multiple.

Clearly, Facebook's growth rate may ultimately cause that expected $ 100 billion to make sense but investors early next year will initially be paying a lot for promise.

I realize that comparing two mature tech companies to something as glossy, new, and full of potential like Facebook probably seems like apples to oranges. The type of investor who will buy a Facebook is no doubt very different from the one who'll buy some low multiple old tech company.

The same would be true for something like Microsoft (MSFT).

What's more difficult to explain is Apple (AAPL). Much like Facebook, that company  is also growing extremely quickly, has tremendous economics (extremely high return on capital), $ 76 billion of cash, yet sells for just 11-12x** the $ 25 billion or so it will earn this year.

Why pay 100x for a fast growing leader in its space when another is selling for just 11-12x?

Adam

Related posts:
Is Facebook Worth $ 100 Billion?
Technology Stocks

* Enterprise Value = Market Capitalization - Net Cash. 
** Apple's market capitalization is $ 356 billion. Subtract the $ 76 billion of cash and investments and you get an enterprise value of $ 280 billion. Enterprise Value/Earnings = $ 280 billion/$ 25 billion = 11.2x
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