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 Aug
VWS
Til Euroinvestor administrator! Jeg må forlange at Administrator forbyder pjneumann at deltage i deb..
107
27 Aug
 
I gamle dage, var der et sted hvor man kunne aflevere disse ønsker, men jeg ved ikke hvor det er nu,..
57
30 Aug
VWS
  London baseret analytiker Pinaki Das fra Bank of America Merrill Lynch fik i denne uge skabt en st..
43
26 Aug
VWS
Skal vi ikke alle stoppe denne interne hån! Ingen kan lide at tabe penge, skulle vi ikke istedet giv..
39
24 Aug
VWS
Så er Pokerchamp tilbage, friskere og stærkere end nogensinde før og skriveklar igen efter aftale me..
20
24 Aug
VWS
Kina er kommet med en offshore tarif fordi den kinesisk regeringen gerne ville fremme offshore wind ..
18
26 Aug
VWS
Det er geni-streg Bank of America i dag har lavet. De har fundet to argumenter til at skabe frygt på..
17
24 Aug
VWS
Kære Pokerchamp    Der hersker ingen tvivl om at mit og din syn på Vestas er to modpoler for øjeblik..
17
28 Aug
VWS
Et godt råd er ikke at overlade dine investeringer til anonyme "rådgivere" fra et forum som i den gr..
15
27 Aug
VWS
Hej kanonkaj   Er enig i, at der skal holdes en ordentlig tone... Men hvad synes du om ordlyden af o..
15

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
Flowserve to Present at Barclays CEO Energy-Power Conference
2
Condensed Consolidated Financial Statements of the Housing Financing Fund for the first half of the year 2014
3
Novartis' new heart failure medicine LCZ696 cut cardiovascular deaths by 20% vs. ACE-inhibitor in landmark PARADIGM-HF trial
4
Scatec Solar and Norfund sign partnership agreement to develop and invest in solar power projects in developing countries
5
Silent Participations and Profit Participation Capital of HSH Nordbank
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 August 2014 23:13:38
(UTC) Dublin, Edinburgh, Lisbon, London
Version: LiveBranchBuild_20140825.1 - EUROWEB3 - 2014-08-31 00:13:38 - 2014-08-30 23:13:38 - 1000 - Website: OKAY