16 May 2012 09:00

Little room for error in Facebook valuation

In an equity theme that I wrote a couple of weeks ago, I pointed out how Facebook might turn out to be a winner stock - in terms of providing a better return on investment relative to the market as a whole. This judgement was based on the company's business case and an expected valuation of $75 billion, which was based on the assumption that weak markets would quell investor demand and drive the price down. However, the latest news suggests that the IPO values the company at $96 billion. I think that this is over-optimistic, and that Facebook has misinterpreted market sentiment, as demand does not seem strong at the proposed valuation.

In my earlier article, I calculated that Facebook could return 17.2% annualised growth until Q1 2016 based on my expected valuation contraction and earnings growth slowdown, which was derived from the experience of Google shares. This model was based on an IPO valuation of $75 billion and near-perfect execution of its business plan. Using the current valuation of $96 billion, the potential annualised return falls to 9.7% over the same period, bringing the potential return closer to what you might expect by investing in an index such as the S&P 500.

This gives a very small margin for error, an due to the fact that there is a good chance the execution will not be completely flawless, the annualised return could turn out to be even less. A valuation of $96 billion is just too tight to justify the risk. As I have already indicated, a valuation of $75 billion makes more sense, and a valuation of $55-60 billion would be the ideal valuation, as identified by fellow TradingFloor contributor Matt Bolduc.

For more on this topic visit Tradingfloor

Post comment

Related debate

  • 1 week
  • 1 month
  • 1 Year
29 Mar
VWS
Normal 0 21 false false false DA X-NONE X-NONE ..
78
31 Mar
VWS
Det er i nødens stund at man skal kende sine venner!   Nordberg kommenterede i en artikel i går på a..
23
25 Mar
GEN
Der er intet mere forfriskende end den intellektuelle udfordring, man føler ved en kvalificeret deba..
18
30 Mar
VWS
Vestas skal som alle andre børsnoterede selskaber overholde reglerne for offentliggørelse af nyheder..
16
26 Mar
OMXC20
Der er ingen korrektion igang, bare lidt ligegyldig panik fordi Saudi har bombet nogle oprørere i Ye..
13
30 Mar
 
Denne tråd handlede ikke om biotek, men om aktier med mellem/lav risiko. Meningen med afkast var nok..
12
27 Mar
TORM
Torm slagtes idag, og det var et helt forudsigeligt fald grundet aktieemissionens udvanding af priva..
11
30 Mar
DANSKE
Pas nu på hvis jeres værger læser med herinde. Jeres prøveløsladelse grundet den tilstundende påske ..
10
30 Mar
 
Åh - i første omgang på IT-boblen. Og så burde jeg jo være blevet klogere. Men så gik det så vældig ..
10
29 Mar
 
Ud med de tosser uden realitetssans..så sender EU et signal til omverdenen...Opfør dig ordentligt og..
10

Tech Companies Send Criticism Along With NSA-Related Data -- Update

04/02/2014 00:06:00
By Danny Yadron Technology companies including Google Inc. and Microsoft Corp. released new figures on the amount of data requests they received from U.S. ..

#

EuroInvestor: In Focus
#

#

EuroInvestor: In Focus
#

Most read news

  • 24 hours
  • 48 hours
  • 1 week
1
GOGL - KNIGHTSBRIDGE SHIPPING LIMITED ANNOUNCES CLOSING OF THE MERGER WITH GOLDEN OCEAN GROUP LIMITED
2
Annual financial statement for 2014: Significant growth with LOQTEQ® (+63%) leads to expansion of trauma business (+27%)
3
VLCCF - KNIGHTSBRIDGE SHIPPING LIMITED ANNOUNCES CLOSING OF THE MERGER WITH GOLDEN OCEAN GROUP LIMITED
4
Cnova N.V. Publishes 2014 U.S. Annual Report on Form 20-F
5
Corning Completes Acquisition of Samsung Electronics' Fiber Optics Business

Copyright Euroinvestor A/S 2015   Disclaimer and Terms of Use
Quote information is delivered by Interactive Data.
Data is delayed 15-20 minutes according to the distribution agreements set by the different exchanges.
 
01 April 2015 10:22:41
(UTC) Dublin, Edinburgh, Lisbon, London
Version: LiveBranchBuild_20150325.1 - EUROWEB4 - 2015-04-01 11:22:41 - 2015-04-01 10:22:41 - 1000 - Website: OKAY