Facebook IPO Hype

(Last Updated On: February 8, 2012)

Facebook IPO Hype

all this talk has reminded me of a piece we wrote back in November…

The Truth Behind Facebook IPO?


A promising investment or just another bandwagon? Facebook, the social network giant, plans to make an initial public offering in early 2012.



The underwriting firms always stack things in their favor – they pick the timing, they get their public relations machine going, they build the hype. It is important to remember that if things are stacked in their favor, they aren’t stacked in yours.

One way of looking at a $100 billion valuation is that on average each of their members has a present value of earnings of $125 ($100 B / .8B users).

In present value revenue terms (assuming profit margin of 25%) this is $500. It’s worth noting that it can be any kind of revenue, doesn’t have to advertising, although that is their main one currently, and the one I’ll focus on.

Very roughly, over the course of 10 years with a discount rate of 12%, this equals payments of about $900.

At a dollar an ad that would be of course 900 ads you’d click through, or 90 ads per year.

There are a lot of simplifying assumptions here, but the purpose is just to do a rough reality check.

A question to ask yourself (and other people) is, “do you click facebook ads?”

I don’t personally and I had very poor results with an advertising program I ran on facebook (although similar programs had good results on linkedin and google). So for me, I get an initial “fail” on the $100 B valuation.

I consider facebook to be a great, even a phenomenal company, but a bad investment at that valuation.



NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!

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