As Facebook prepares to float, is its $96bn estimated market value excessively high?
YES
Aaron Padgham
Based on 2011 earnings, an IPO at $96bn (£59.4bn) would leave Facebook trading on a price-to-earnings multiple of 96 times. A simple comparison shows that this towers above the more established technology giants of Apple (41 times) and Google (33 times), making Facebook’s shares some of the most expensive to be traded on the world’s developed markets. Does Facebook warrant a valuation higher than both these firms? Apple and Google are world leaders in their own rights, one responsible for the world’s most widely-used search engine, on top of YouTube and the Android operating system, and the other with a huge hold on the consumer technology market. The short answer to that is no. Furthermore, while Facebook may seem like the “in-thing” site of this generation, it shouldn’t be forgotten what happened to MySpace.
Aaron Padgham is an investment analyst at t1ps.com.
NO
Richard Nunn
The same question was asked of Google back in 2004. At IPO, Google had revenues of $1.5bn, profits of $106m, on a multiple of 15x revenue with a market cap of $23bn. Google is now valued at $180bn, twice Facebook’s worth. Facebook has two and a half times more revenue, ten times more profit and 110m more users, just in the U.S, than Google had at IPO. Facebook is, and will be, the dominant social media platform globally, with one in seven people in the world using it. Half of these access Facebook via mobile, which hasn’t yet been monetised. However, the key is the potential for advertisers to engage deeply with the consumer. An average user spends 6 hours and 51 minutes a month on Facebook, five times more than any other web platform, including Google. Along with potential from its mobile platform, this is what should be monetised and this is the huge revenue upside.
Richard Nunn is a media analyst at Charles Stanley Securities.