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
28 Jul
FLS
Dine bud på aktien svinger sgu betydeligt mere.......så foreslår vi får skiftet dig ud.
25
23 Jul
OMXC20
  I EPS og cash flow del 1 gennemgik jeg de udfordringer, der er ved anvendelsen af disse til brug f..
22
26 Jul
VALE
  Måske ikke helt korrekt aktiemarkering, for det handler ikke om Vale specifikt. Jeg finder, som t..
21
28 Jul
VWS
  Hej Debattører på Euroinvestor       Lad det være sagt med det samme. Jeg har lånt nogle Vestas ak..
18
23 Jul
OMXC20
Kasper, nej...................   Inden man i det hele taget skal foretage vurderinger som disse ( in..
18
24 Jul
I:DJI
Forleden var der heftig debat om trackrecord, hvor Alfinvest, Mena m.fl. forsøgte at overgå hinanden..
17
23 Jul
OMXC20
Jeg forstår ikke hvorfor smainvestorer tror, at de skal gakke hen og gøre som Warren Buffet. Det kan..
16
28 Jul
VWS
Hej Maui,   Tak for et nuanceret indlæg, med en meget fin beskrivelse af dine tanker omkring Vestas ..
15
24 Jul
VWS
Kunne man forestille sig at Barcleys ved mere om PTC ordningen og hvordan det normalt foregår, end v..
13
28 Jul
 
Jeg håber I holdt fast i går, da banditterne rystede træet i går, og kraknisserne her på EI råbte sæ..
11

Form 8.3 - Royal Dutch Shell plc

29/07/2015 14:49:42
FORM 8.3 PUBLIC OPENING POSITION DISCLOSURE/DEALING DISCLOSURE BY A PERSON WITH INTERESTS IN RELEVANT SECURITIES REPRESENTING 1% OR MORE ..

Form 8.3 - RSA Insurance Group Plc

Related news
29/07/2015 13:38:05
FORM 8.3   PUBLIC OPENING POSITION DISCLOSURE/DEALING DISCLOSURE BY A PERSON WITH INTERESTS IN RELEVANT SECURITIES REPRESENTING 1% O..

Form 8.5 (EPT/RI) - Bwin Party Digital Entertainment plc

29/07/2015 09:15:48
FORM 8.5 (EPT/RI) PUBLIC DEALING DISCLOSURE BY AN EXEMPT PRINCIPAL TRADER WITH RECOGNISED INTERMEDIARY STATUS DEALING IN A CLIENT-SERVING CAPACITY..

Most read news

  • 24 hours
  • 48 hours
  • 1 week
1
Apple Pay Use Growing in US, According to Auriemma Consulting Group Study; UK Could Prove Even More Receptive
2
Murphy Oil Corporation Announces New Officer and Executive Management Change
3
Black Hills Corp. Announces Quarterly Dividend
4
Noranda Announces Special Meeting to Seek Stockholder Approval of Reverse Stock Split, Receives Continued Listing Standard Notice from NYSE
5
ATOS : First half 2015 results

Buy and sell signals

  • Trend
  • Moneymachine

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.
 
29 July 2015 20:58:02
(UTC) Dublin, Edinburgh, Lisbon, London
Version: LiveBranchBuild_20150716.1 - EUROWEB2 - 2015-07-29 21:58:02 - 2015-07-29 20:58:02 - 1000 - Website: OKAY