Sunday, February 19, 2012

Is Facebook really worth $100 billion in an IPO?

The press, online press and blogosphere, is overrun with pundits, non pundits, people who may understand valuing a private company, and many more who have no idea how to do so, regarding what Facebook’s valuation would be in an IPO (Initial Public Offering). Now, you can perform your own quantitative analysis to arrive at a value.

Asup Srivastava is an Assistant Professor in Accounting Information and Management at the Kellogg School of Management. He posed the question in an interesting article, “Is Facebook really worth $100 billion?” Beyond that, Asup has included a nice spreadsheet (also an interactive web version) along with the article. You can enter your own best information and perform a 10 year discounted cash flow analysis to arrive at an IPO valuation of your own.

This is a straightforward model for those with any financial, accounting, or analytical background. The model has much substance than doing a revenue multiplier and other rules of thumb floating around the internet. Those “smartest guys in the room” at investment banks have more sophisticated models, but it would cost you $$$$ to get access.

The article is included in “Kellogg Insight”, the Kellogg School of Management's online magazine covering faculty research.

More on Anup Srivastava

Anup Srivastava is an Assistant Professor in Accounting Information and Management. He earned his PhD in Accounting from Texas A&M University, MBA from Delhi University, and BTech from IIT Delhi. Anup’s research focuses on the financial reporting area. His current research interests include revenue recognition, accounting conservatism, disclosures, and executive compensation.

No comments: