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
14 Aug
PNDORA
  Jeg har løbende adgang til Carnegies analyser af Pandora og har senest i dag modtaget seks slides,..
54
11 Aug
I:DAX
Hej   "Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphor..
38
11 Aug
EI
Kære EI Var det muligt at begrænse trompeten og baronen84, til 5 indlæg i døgnet, dels for at højne..
23
16 Aug
BAVA
Kære Bavarian aktionærer jeg har forsøgt at samle lidt informationer sammen dels taget fra ”sodazare..
22
13 Aug
VWS
Godaften allesammen Jeg mener at analytikkernes estimat for Vestas ordre indtag fir indeværende år..
20
15 Aug
VWS
Hej Per.   1) Når et selskab køber aktier bliver de en del af virksomhedens ejendom - de kan derfor ..
15
15 Aug
VWS
Stop nu dig selv menneske. Du har tudet og vrælet op om, hvor elendigt kursen har ageret siden oktob..
14
14 Aug
ONXEO
Jeg vil gerne give et brush up. Mit udgangspunkt er, at jeg har aktier i selskabet og derfor har nog..
14
14 Aug
VELO
  Gør mit bedste for at forholde mig til facts, også omkring væksten, selvom jeg ikke er fejlfri, er..
13
15 Aug
VWS
Når jeg læser Kommentarer's substansløse indlæg, så tænker jeg på sådan en situation:Kommentarer går..
12

Alliance Trust PLC : Net Asset Value(s)

17/08/2017 14:10:16
ALLIANCE TRUST PLC                                    At the close of business on Wednesday 16 August 2017: The Company's NAV per ordinary share, valued on a bid price basis with Debt at Par, was -       excluding income, 769.3p -       including income, 778.7p  The Company's NAV per ordinary share, valued on a bid price basis with Debt at Fair Value, was -       excluding in..

Form 8.3 - Wood Group (John) Plc

17/08/2017 13:46:26
FORM 8.3 PUBLIC OPENING POSITION DISCLOSURE/DEALING DISCLOSURE BY A PERSON WITH INTERESTS IN RELEVANT SECURITIES REPRESENTING 1% OR MORE Rule 8.3 of the Takeover Code (the "Code") 1.         KEY INFORMATION (a) Full name of discloser: Kames Capital Plc (b) Owner or contro..

Dimensional Fund Advisors Ltd. : Form 8.3 - Tesco Plc - Ordinary shares

17/08/2017 10:26:28
FORM 8.3 PUBLIC OPENING POSITION DISCLOSURE/DEALING DISCLOSURE BY A PERSON WITH INTERESTS IN RELEVANT SECURITIES REPRESENTING 1% OR MORE Rule 8.3 of the Takeover Code (the "Code") 1.         KEY INFORMATION (a) Full name of discloser:   Dimensional Fund Advisors Ltd. ("Dimensional"), in its capacity ..

Most read news

  • 24 hours
  • 48 hours
  • 1 week
1
DEADLINE ALERT: Brower Piven Reminds Investors Of Upcoming Deadline And Encourages Shareholders Who Have Losses In Excess Of $100,000 From Investment In Pingtan Marine Enterprise Ltd. (NASDAQ: PME) To Contact The Firm
2
INVESTOR ALERT: Brower Piven Encourages Shareholders Who Have Losses In Excess Of $100,000 From Investment In Zebra Technologies Corporation (Nasdaq: ZBRA) To Contact Brower Piven Before The Lead Plaintiff Deadline In Class Action Lawsuit
3
ZTO EXPRESS SHAREHOLDER ALERT BY FORMER LOUISIANA ATTORNEY GENERAL: KAHN SWICK & FOTI, LLC REMINDS INVESTORS WITH LOSSES IN EXCESS OF $100,000 of Lead Plaintiff Deadline in Class Action Lawsuit Against ZTO Express (Cayman), Inc. - (ZTO)
4
INVESTOR ALERT: Brower Piven Encourages Shareholders Who Have Losses In Excess Of $100,000 From Investment In Foundation Medicine, Inc. (Nasdaq: FMI) To Contact Brower Piven Before The Lead Plaintiff Deadline In Class Action Lawsuit
5
Semaglutide superior to dulaglutide on glucose control and weight loss in people with type 2 diabetes in SUSTAIN 7

Buy and sell signals

  • Trend
  • Moneymachine

Copyright Euroinvestor A/S 2017   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.
 
17 August 2017 16:38:33
(UTC+00:00) Dublin, Edinburgh, Lisbon, London
Version: LiveBranchBuild_20170808.1 - EUROWEB4 - 2017-08-17 17:38:33 - 2017-08-17 16:38:33 - 1000 - Website: OKAY