Facebook Above $100 Per Share
set for biggest internet IPO in
The frenzy around Facebook stock has now officially hit fever pitch.
The social networking company is floating in May 2012. The offering would be one of the largest tech
IPOs ever, with an estimated market capitalization of $100 billion.
Bullish about the Facebook IPO. A big jump coming in Facebook’s value after an IPO up to $100 per
In an email sent out to potential investors–before the news broke about Facebook stock is for sale at $40
Facebook stock at a price “north of $100” in November 2012. We expect the IPO will price in May at a
price “in the mid $50’s.”
We believe Facebook is going to be a very, very big company. The upside is substantial.”
Strong interest from investors wanting to get in early has sparked a 24% surge in Facebook's share price on the
"secondary market" for private-company shares since just before the social network filed on Feb. 1 for an IPO.
As of February 22, Facebook's per-share price on the secondary market was $42, up from $34 on Jan. 20
The early interest in the shares is driven by several factors. For one, some investors believe the offering price
will be higher than where the private shares are trading now. Buying now, they say, represents a chance for even
greater profits than the typical first-day trading "pop" of a sought-after stock.
WHY INVEST IN FACEBOOK
Facebook is worth $134B or approximately $57.50 per share based on 2.332B pro forma diluted shares outstanding,
calculated using a discounted cash flow model. Assumptions include EBITDA CAGR of 32% from 2011 through 2020.
This implies a forward P/E of 85x, a forward P/EBITDA of 41x, and a forward P/S of 20x.
1. Facebook is the second most popular internet destination after Google. It is the definitive
social network, where more than 800 million active users worldwide maintain their digital
identity and interact, socialize and transact online.
2. Revenue is generated from advertising and commerce. Approximately 85% of 2011 revenue
was generated from ad sales, and 15% of revenue was generated from commerce. We believe
this ratio will trend toward 70:30.
3. Approximately 400 million people log on to Facebook every day. This audience catalogues
highly specific, personal information about themselves, and Facebook owns this data. This
data is very valuable and currently underleveraged.
4. Many revenue opportunities exist, including search and enhanced commerce. We believe the
Facebook platform will enable a long tail of product and service offerings to both mainstream
and niche markets, expanding opportunities for direct, targeted, relevant advertising.
5. Facebook is valuable only if it remains relevant to its user base. Relevance is measured in part
by Metcalfe’s Law, or the size of the active network. More important is engagement, including
time on site, activity on site, and commerce conducted on site.
6. Engagement is determined by Facebook’s ability to provide entertainment value, information
value and commercial value to its user base. We believe Facebook will continue to encourage
open sharing on the platform; promote more and richer forms of user generated content
(UGC); deepen connections between its users; limit network noise; and enable businesses to
serve the user base with relevant commercial offerings.
7. Facebook is a walled garden with high engagement. The average US user spends approximately
380 minutes per month on Facebook. The company is constantly investing in an enhanced
user experience, and fearlessly rolls out new UX. While the user base will eventually
approach its asymptote, we believe engagement will continue to climb.
We have compared Facebook, an online social network, to eight public companies that have significant user engagement
and participate in advertising, search, commerce, and media. These comparables have varying cost structures; we view
GOOG as the closest comparable because of the size of its user base and exposure to advertising and commerce revenues.
PUBLIC COMPANY ANALYSIS