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
26 Oct
VWS
Fra tid til anden lytter jeg til Solveig Bjørnestad’s P1 Business. Hun er dygtig til at lave en 360 ..
36
27 Oct
VWS
Normal 0 21 false false false DA X-NONE X-NONE ..
26
26 Oct
BAVA
Jeg synes du skulle lade være med at bekymre dig om kortsigtede udsving, og ganske enkelt gå lang i ..
16
28 Oct
I:SP500
Det ser grundlæggende ganske fint ud makroøkonomisk, hvilket ikke er det samme som at der ikke finde..
15
28 Oct
VWS
 Fredag d. 3. okt. i år var den norske Olie- og energiminister Tord Lien og næstformand for det nors..
13
23 Oct
VWS
Quantum Utility Generation er på den anden side af "Mountain Friends", og de kan nu fortsætte deres ..
12
29 Oct
FING-B
Swift - det er jo fuldkommen ligegyldigt hvad vi siger eller gør så synes du og dit slæng det er for..
11
29 Oct
VWS
Hej Pokerchamp, det du kalder 'amatør-detektiv'-arbejde er langt mere informativt end dine ukonstruk..
11
26 Oct
 
Læg mærke til medierne altid fokuserer på de dårlige nyheder! Verden er af lava og vi hører konstant..
11
25 Oct
I:DAX
DAX 24.10.14 ugechart optrend target 10.500 og 11.200.jpg. http://gratisupload.dk/vis_billede/715454..
11

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. ..

U.S. Hot Stocks: Hot Stocks to Watch

03/02/2014 14:07:00
Among the companies with shares expected to actively trade in Monday's session is Herbalife Ltd. (HLF). Herbalife Ltd. (HLF) raised its fourth-quarter outl..

Pfizer Study Meets Primary Endpoints

03/02/2014 13:05:00
Pfizer Inc. (PFE) said Monday that a Phase 2 trial of its advanced breast cancer treatment met its primary endpoint. Pfizer said a study comparing the effec..

Most read news

  • 24 hours
  • 48 hours
  • 1 week
1
U.S. FDA Grants Fast Track Designation to Novavax' H7N9 Influenza Virus-Like Particle Vaccine Candidate Adjuvanted With Matrix-M(TM)
2
KLEPIERRE : METHODS OF DISPOSAL OR CONSULTATION OF THE INFORMATION RELATING TO THE ORDINARY AND EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS TO BE HELD ON DECEMBER 11, 2014
3
ASM INTERNATIONAL N.V. REPORTS THIRD QUARTER 2014 RESULTS
4
Piedmont Office Realty Trust Reports Third Quarter 2014 Results
5
RENAULT : Quarterly information, 30 September 2014
Euroinvestor around the globe: Euroinvestor.dk | Euroinvestor.se | Euroinvestor.no | Euroinvestor.fr | Forexinvestor.com| Wisselkoersen.nl | Valuta.se | Valutaveksel.no | Divisas.es | Valute.it
Copyright Euroinvestor A/S 2014   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.
 
30 October 2014 12:12:47
(UTC) Dublin, Edinburgh, Lisbon, London
Version: LiveBranchBuild_20141028.2 - EUROWEB6 - 2014-10-30 13:12:47 - 2014-10-30 12:12:47 - 1000 - Website: OKAY