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The Nigerian...doing this for practice before I hit the mall with my nikka and as a basis for a pitch I'm gonna make to an I-Banker.
Peep this info and feel free to rebut.
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There arent any mature, large, public social networks to compare to so Ill compare to MATURE public tech companies that deal with revenue from online and mobile apps as well as services they provide (mainly advertising). Lets compare to Google, Priceline, EBay and Amazon for the fukk of it
. Large cap companies all within the same stratosphere as Facebook.
Price to Sales ratios:
PCLN ($37B Market Cap) - 6.7
GOOG ($280B Market Cap) – 5.1
AMZN ($117B Market Cap)- 1.8
EBAY ($70B Market Cap)– 4.8
FB ($67B Market Cap)– 12.5
To give a better picture that relates to Cash and Debt…lets use enterprise value. (Higher cash than debt…less EV)
Enterprise value is essentially what it would cost to by the company...Market Cap + Debt - Cash (You can use the cash you bought to pay off debt)
Enterprise Value to Sales
PCLN – 5.9
GOOG – 4.2
EBAY – 4,3
AMZN – 1.7
FB – 11.5
I wont even bring EBITDA into this because then it’ll really get ugly.
FB has a ratio of 12.5 and 11.3 respectively only because it is still in its growth phase. For this current valuation of $67B to be correct...this means the markets expect facebook to double its revenue. This is considering the average in this little table without Facebook (and Amazon which is much lower for whatever reason) is about 5.5 for both metrics. 90% of this companies revenue is from advertising…what incentive is there for corporations/companies to increase their damn advertising in facebook when the usage of the actual website is declining behind the scenes? That is why I said the only way this valuation can be correct is if the company starts using its cash for acquisitions or if it creates whole new business lines so it isn’t so dependent on advertising.
Now lets get into the price to Earnings ratio (trailing 12 months)…because what good is a company’s sales if none of the earnings are being retained for shareholders, or invested into the company (and I don’t mean invested into bullshyt innovations like FB home)??
FB – 577
GOOG – 25
EBAY - 26
PCLN – 26
(All figures are rounded…and they just so happen to all converge to 26 making my job easier
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So get this. Not only do investors expect Facebook to double its revenue to $11B by year end 2015…but they expect to company to improve its operating efficiency and thereby only increase its expenses (currently at $5.3B…$3.9B without R&D) to about $8.2B. Because that would then create a net income of $2.8B (which creates a 25 P/E ratio when compared to Facebooks current market capitalization.)
. 100% revenue increase and 60% expense increase. Doable but not if they're gonna be working in them labs like you said. There is no way that this is happening for a company that is pretty much a fad at this point, a fad that is going to require extensive R&D expenses to branch out and grow its business beyond advertising.
I can continue going further but you have no clue about any of this so I wont bother. But tell me, how is Facebook gonna meet these expectations by 2015 because you know so much.
http://finance.yahoo.com/q/ae?s=FB+Analyst+Estimates
Just so you know I aint talking out of my ass with them numbers...peep that yahoo link. The market pretty much expects 25% increases over each of the next 3 years which which would eventually amount to 100% times last years revenue in 2015. (1.25^3 = 1.95)