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Company is estimated to be worth around $107B USD, including unexercised share options

Facebook -- the world's most used website and the largest social network in the world -- is on the eve of its initial public offering of stock.

The price of shares -- $38 USD -- was just announced.  That places Facebook's tenative market capitalization at $81B USD, more than some expected.  Combined with executives unexercised share options, the company's total valuation appears to be around $107B USD, according to experts.  That's notably a higher valuation than the world's top online retailer, Amazon.com, Inc. (AMZN) who "only" has a current market cap of $98.4B USD.

The IPO will raise $16B USD, based on the announced share price.  The IPO is the third largest in U.S. history, behind only Visa Inc.'s (V) 2008 offering of $19.7B USD in stock and General Motors, Inc.'s (GM) $18.1B USD post-bankruptcy stock offering.

Shares will trade under the symbol "FB".  It is unlikely that many shares will reach the hands of small independent traders; the IPO is underwritten by finance house Morgan Stanley (MS) and most shares will go to large institutional investors, mutual funds and hedge funds.  This is different from other top tech IPOs of the past, such as Google, Inc. (GOOG) who sold directly to individual investors via a "Dutch auction" process.

The expected offering date is May 18, pending approval by the U.S. Securities and Exchange Commission.

The stock offering is destined to transform Facebook's early investors and founding members into multi-millionaires, if not billionaires.  Facebook's co-founder has reportedly abandoned his U.S. citizenship in order to avoid paying much of the taxes on the windfall that will be coming his way.  Iconic co-founder Mark Zuckerberg remains a U.S. citizen and has pledged to give away his fortune to charity when he dies, as suggested by his mentor, Bill Gates.

Facebook is a company of much controversy and potential.  Some believe it could increase profits by a substantial multiplier if it jumped into the online payments business as a competitor to eBay, Inc.'s (EBAY) Paypal service.  However, concerns over privacy and censorship remain active discussions and may make some investors cautious of diving in to the Facebook stock.

Source: CNN Money



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RE: Comparison with AMZN
By MrBlastman on 5/18/2012 7:44:37 AM , Rating: 2
Amazon is only trading at barely 2x revenues and it actually provides something of worth to society. I'd say they are at the very least fairly valued. In case my opinion isn't good enough, the analysts at Morningstar fairly value them at 250 bucks. The stock is at what, only 218 a share?

Facebook is IPO'ing at 20+ times revenues! The only thing ridiculous here is Facebook.


RE: Comparison with AMZN
By skirvmi on 5/18/2012 9:31:59 AM , Rating: 2
Amazon is trading at about 180 P/E, not sure where you are getting your numbers from. A P/E of 20 is well withing the realm of normal. Google is at about 19. A higher P/E just means it is a "growth" stock.


RE: Comparison with AMZN
By mcnabney on 5/18/2012 9:56:57 AM , Rating: 2
That logic of a ludicrously high PE works for small, up and coming companies. Not so much with a mature and well known one. Just because everyone has heard of something doesn't mean that they are going to give you a ton of money. Remember, this IPO values FB higher than Disney, which is a mammoth company with holdings as diverse as a TV network, cable channels, theme parks, Pixar + their own production studio, theme parks, and a catalog of IP dwarfing all others. Facebook is a place where people play casual games, check out past girlfriends, and tell mom that the kid is riding a bike without training wheels.


RE: Comparison with AMZN
By skirvmi on 5/18/2012 10:15:03 AM , Rating: 2
The value of a company is more than its assets and earnings. The brand itself has value. Removing all assets, how would you value a company like Coke simply on the brand? While this is part of it, Facebook's value is based largely on the information they posses. Detailed information about peoples preferences, locally, nationally, and globally would be worth a huge amount of money for people producing and marketing products. To me, this is why there is such a buzz around Facebook. It will be interesting to see how much the market thinks this information is worth.


RE: Comparison with AMZN
By mcnabney on 5/18/2012 3:08:51 PM , Rating: 2
Uhm, brand value is actually recorded in a company valuation as goodwill. For Facebook, a $108B market-cap would imply goodwill of over $100B. Insanity. And I thought that Amazon was insanely priced.


RE: Comparison with AMZN
By MrBlastman on 5/18/2012 11:01:33 AM , Rating: 2
Common people refer to P/E as the holy grail of ratios. People that know what they're talking about look at other figures, like Revenues versus Market Cap. Re-read my previous post. You'll see quite clearly I didn't mention P/E.

Also, you do NOT know what you're talking about, at all. Not one bit. To try and equate a standardized P/E of 20 with every single company out there is laughable.

P/E is relative, like all other ratios. It isn't a hard set number with thresholds. In order to make sense of P/E, like all other ratios, you have to compare them with their peers in the same industry or similar sector. This is the only way you can begin to shed any light and make sense of them. There is no steadfast rule here, it is purely governed versus their peers.

If companies were only valued by their P/E, then companies that lose money (i.e. have negative P/Es) would be worthless. They aren't though! You can see it for yourself by looking up Sprint's figures. They have a negative PE--i.e. they are losing almost ten cents on every dollar they bring in on revenues. Yet, still, even though they are losing money, they still have a market cap of 7 Billion.

FYI Facebook is going to open with a PE of 126. That is meaningless to me given their slowing growth. I'm far more concerned about Revenues vs. Market Cap than anything else here. You cross 8x in a high growth industry like the tech industry and I start getting worried. Even companies like Rackspace who are growing rapidly only trade at 6.8x.


RE: Comparison with AMZN
By skirvmi on 5/18/2012 11:20:15 AM , Rating: 2
I appreciate your honest feedback regarding my knowledge. My experience in the area is limited to grad school and I don't do this on a daily basis.

I was mistaken about the FB PE, but my real point was that it was not unheard of even at 126 in its industry. I never made the argument that it was the holy-grail.

It is going to be difficult to value a company like FB based solely on its financials. Its real value is in the information it possesses. Just because they have not effectively monetized it yet doesn't mean there is no value.


RE: Comparison with AMZN
By MrBlastman on 5/18/2012 11:47:43 AM , Rating: 2
That information is only as good as how current it is too. You're right, they hold quite a bit of their value in that information. The challenge is trying to monetize it in a timely manner before:

a. That information deteriorates and is less valid
b. Before users start leaving Facebook to the next big thing

They have a great asset. They need to capitalize on it now, not later. The problem is their growth is slowing, which is not something you want to see in this kind of company. Earning only a dollar per user isn't exactly making much off of it, either.

One other alternative way to value Facebook is to actually value that information--what could it be sold for today to another company--say a marketing company.


RE: Comparison with AMZN
By mcnabney on 5/18/2012 3:17:16 PM , Rating: 2
Sprint actually does have no value.

Their cash flow allows them to continue to exist (as do bond purchasers which continue to float the idiotic management, hoping for change). Having no earnings is expected in startups, but is only briefly tolerated in mature companies. If a business isn't currently delivering or have certain to appear profits there is no reason for shareholders to hold their shares and bond holders should brace for a haircut.
Now Facebook doesn't really seem to have much of a plan for future revenue or earnings growth. They do know how to waste money (Instagram) on other companies and ideas that also don't appear to have a ROI.
That is why I rate Facebook as "point and laugh at people scrambling to buy", because it is going to be a hot potato and you don't want to be left holding the Old Maid when everybody darts for the exits when the illusion fades.


RE: Comparison with AMZN
By TakinYourPoints on 5/18/2012 5:41:21 PM , Rating: 2
You are correct that PE is only one factor out of many (I'm mainly a technical trader myself, using charts, etc).

However, AMZN's PE is an indicator of other issues with the company, namely slowing growth and razor thin profit margins. And while using 20 as a standard PE isn't a hard and fast rule, comparing it with other mature large cap mature tech companies does say quite a lot.

180 PE for a major large cap that has yet to improve their profit margins is a bit much. Wall Street is better on Amazon to improve theirs at some point. Either their profits will justify the stock price, or eventually the price will drop to better reflect what Amazon actually makes.


RE: Comparison with AMZN
By TakinYourPoints on 5/18/2012 5:42:50 PM , Rating: 2
You are correct that PE is only one factor out of many (I'm mainly a technical trader myself, using charts, etc).

However, AMZN's PE is an indicator of other issues with the company, namely slowing growth and razor thin profit margins. And while using 20 as a standard PE isn't a hard and fast rule, comparing it with other mature large cap mature tech companies does say quite a lot.

180 PE for a major large cap that has yet to improve their profit margins is a bit much. Wall Street is better on Amazon to improve theirs at some point. Either their profits will justify the stock price, or eventually the price will drop to better reflect what Amazon actually makes.

As for Rockspace, the reason it is so poorly valued is that few believe that it will make any real headway. Why would anyone run up the price except on a big rumor?


RE: Comparison with AMZN
By TakinYourPoints on 5/18/2012 5:36:37 PM , Rating: 2
Revenue growth isn't there, and profit margins most definitely aren't there to justify the stock price.

It is the strangest thing, investors treat Amazon like a tech stock when their business model is much much closer to a big traditional retailer such as Walmart's (make razor thin profits in order to maintain market share).

Fairly valued? We'll see, either they finally start making profits to justify the valuation or the stock price comes down accordingly.


RE: Comparison with AMZN
By zephyrprime on 5/21/2012 1:22:18 PM , Rating: 2
I agree. I don't see where AMZN is ever going to make huge margins. They basically are the next walmart and should be priced accordingly. Being the next walmart is actually a very enviable thing to be but it's not some sort of magical position to be in.


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