News media is awash this weekend with speculation that Facebook will, this week, file the first papers leading to its keenly awaited IPO in April/May. The filings will provide the first concrete view of Facebook’s financial performance. Rumours are that it now has revenues of $6b, is profitable and has already amassed $3b in cash. We might also get an update on user numbers. 800m is the latest announced figure – so we might be close to 1b now. We have been following Facebook closely for many years. As the chart shows, to go from 1 user to 1b users in eight years is remarkable. That probably equates to about a third of all people on earth who might remotely be able or capable of using the internet.
The speculation is also about valuation with the ‘magic’ $100b being the favoured figure. Now, I am a great fan of Facebook and have long said that they will be the #1 contender to be Holway’s MyTop. I see mega $ of marketing spend migrating to them – much of it at the expense of Google. But they will be much more than that as I also see them being a retail, entertainment, news and games portal too. All of which have huge earnings capabilities.
But we should look at that £100b valuation in context. That's already twice value of HP and greater than Amazon's $88b market cap. Google, with revenues of $38b has a market value of $188b. IBM, with revenues of $107b, has a market value of $220b. Apple, with revenues of $127b, has a market value of $420b but has $100b in cash! BTW – for all of you who constantly write in to me saying that Apple is overvalued and has peaked, I would point out that both Google and IBM have forward P/Es of 11.6 but Apple’s is now just 9.6!
Every tech fund – indeed every tech investor – will need to have Facebook in their portfolios. At that valuation, it will be a major part of the NASDAQ (or whatever exchange their choose to IPO on) and therefore part of the benchmark against which they are judged (even rewarded) I suspect only a small number of shares – say 10% - will initially be floated. Rarity will push up prices too.
Google had a valuation of 'just' $23b in its 2004 IPO. Google shares are up nearly 6x since. But in Facebook's case I suspect that the real fortunes/mega gains for shareholders have already been made.
Footnote - I wrote this article over the weekend. I was therefore interested to read Lex in the FT on Monday morning who made similar interesting comments on the 'cheapness' of Apple in comparison. Read Apple shares are strange fruit - provided you are an FT subscriber.