NEW YORK - Facebook took its first step into being a public company as it filed its S-1 filing today after the market close. Mark Zuckerberg the founder of Facebook decided to pursue the dual class route. Now, we finally get to see Facebook's finances. The company had $3.7 billion of revenue which grew by 87%. This puts them 1/10 the size of Google. The company also made $1 billion in earnings last year which is growth of 65% from the year before. This is also essentially 1/10 the size of Google. However Google's earnings grew 14% last year and its revenue grew by 31%. Google currently trades with a 20 PE. Perhaps with over 4 times the growth, Facebook deserves over 4 times the PE. This is leading many to speculate that the valuation should be $100 billion.Given the numbers today, it is possible that this valuation is breached. Holders of Amazon are willing to pay huge premiums for revenue. Holders of Groupon pay for revenues and losses. Holders of Zynga pay for rapidly declining profits. And future holders of Facebook get revenue and profit.
Did we mention Facebook also has over 800 million users and a pristine financial condition? Yet the value of Groupon and Zynga together is $20 billion. If two people bought Zynga and Groupon for $20 billion then I would think Facebook is worth $20 trillion. However given Apple's price of $425 billion it is hard to imagine Facebook is worth $30 billion.
The stock market allows for great deals and poor deals. However if Facebook could grow profit at 65% a year for 20 years the company would be worth over $1.5 trillion. Even with more realistic numbers the valuation at $100 billion makes sense. Facebook compared to its competitors is cheap. Given its long term business model and pristine financial condition it is probably not worth betting against. Unlike Apple, Facebook does not seem like it has to innovate as much to stay relevant. This perhaps makes the company safer and gives it a higher valuation.
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