Saturday, July 28, 2012

What is Facebook worth Revisited - Latest Earnings Report - Employee Stock Lock-Up Expiring Shortly

Facebook released their financial results on Thursday.  Facebook’s  growth figures in their first quarter   as a public company following their IPO would have been impressive for most companies.  Nonetheless,    

Facebook stock took ­­ a  face plant following   the earnings release.  Below is a second quarter summary of their financial results. On Friday, Facebook closed at $23.71.  This gives them a market capitalization of $44.5 billion.  Click to enlarge the table.  CEO Zuckerberg may stay under the radar for the next several weeks.  


 The $95 to $100 billion  IPO pundits are taking a low profile.  Probably focusing on their tweeting.

In May, GreenCrest Capital’s Max Wolf felt that Facebook's  financial numbers suggested a valuation of $60 billion.  This is 37%   less than the $96 billion Facebook was thinking of.  His figure as of July 27, is off by only $15 billion, on the high side. 

Also in May,  Anup Srivastava, an assistant professor of accounting information and management, Kellogg School of Management, ran a valuation model and arrived at  a base case valuation  of $25 billion.  “This is based on the firm’s revenues reaching approximately $21 billion in ten years’ time from approximately $4 billion today, and the firm maintaining a high return on assets of approximately 20 percent.”   His model, as of July 27, is off by only $19 billion, on the low side.  The last link at the bottom of this blog leads to Srivastava’s original article in “Expertly Wrapped” an online publication by Kellogg faculty. This also provides  a link to his valuation model.  Discounted cash flow analyses can be a good thing!

As an amusing aside, average the two figures above by these individuals - $44.8 billion, off by only $0.3 billion !  A sample of two smartest guys in the room probably doesn’t qualify for wisdom of crowds status. 

Facebook will free up nearly 1.7 billion shares -  four times the number now trading,  beginning in August.  Provisions   currently barring  employees from selling their holdings will start.  Unfortunately for the employees, if they execute these immediately, they are taxed as regular income. 

Shares of online coupon purveyor Groupon Inc. declined 8.9% when its lock-up expired on June 1.  The stock dropped nearly 20% that week. Likewise, shares of online gaming company Zynga Inc. fell 7.9% when its lock-up expired on May 29. The stock price ended up falling    9.1% for the week.  Look for some sort of dip as Facebook employees start selling some of their stock,  and people continue accessing Facebook on their mobiles. No revenue for Facebook when they do this.

Real estate agents in Palo Alto,  Atherton, and Menlo Park (where Facebook is headquartered), are probably looking at Facebook’s stock price a lot more than mortgage lending rates. 


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