What is Facebook’s Value?

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In the first quarter, the growth rate for Facebook was at 45 percent year over year, which is a decrease of 55 percent from the fourth quarter of last year. That decrease was also a big decline from the previous quarter. Facebook is staring at a major problem right now and that problem is deceleration, which the market does not like at all. The profit margin for Facebook when it opened was 50 percent, which means it more than likely can only decrease from here.

Facebook’s revenue growth from advertising in the first quarter only hit 37 percent, which most view as very unimpressive. Facebook has begun to burn cash because the company is spending so much money on data centers. Many thought that Facebook would rival Google in terms of revenue, but the revenue for Google is 10 times as large as Facebook’s and Google has a larger cash flow than Facebook’s revenue. Should Facebook not reaccelerate its growth for the remainder of the year, then it could post a revenue increase of just under 40 percent for the entire year.

  

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Analysts estimate that the earnings for Facebook in 2013 range from roughly $0.40 to $1.00, which puts the trading at 40X-100X in 2013 earnings. Facebook is markedly smaller than Google and Apple, which means that if all goes well, Facebook could grow its earnings quicker than those two companies. It is quite possible that Facebook could trade at 20X-30X if their revenue does not reaccelerate. Should Facebook be able to earn $1 per share in 2013, it could possibly trade at $20-$30, which calculates to $50 billion to $85 billion. Should Facebook wind up trading at Google and Apple’s valuation according to Wall Street, Facebook could earn $0.60 at $6-$7.

When you look at Facebook, some people think that the company is just beginning to monetize its users, that it will be able to create dozens of new products that will make billions of dollars in revenue, that it can jump into apps and platforms and that it will have 2 to 3 billion users soon. One thing that the company needs to realize is that the first one billion users of Facebook are the company’s most valuable because the richest people in the world are already using the site. These users are the ones that advertisers are trying to reach right now.

Should Facebook acquire 50 percent revenue growth over the next two years, it could post revenue of $5.5 billion in 2012 and $8.3 billion in 2013. For the most part, it might be safe to estimate Facebook’s value at 20X-30X 2013 for estimated earnings. If you estimate the value between Wall Street’s estimate of $0.60 and an aggressive estimate of $1.00 at say, $0.80, the value of Facebook would come in between $16-$24.