Price/Earning of Google Microsoft, Apple and Facebook

Facebook analyst says their stock worth less than 5 dollars!

Latest IPO on the NASDAQ have been put into pressure those last months. Facebook stockholders have lost $53,837,695,286 (53 Billion Dollars), Zynga $9,806,848,991 (9,8 Billion Dollars) and Pandora $1,044,924,668 (1 Billion Dollars) taken stock prices from 17 August 2012.

We have tweeted May 18, 2012 “Will buy #fb stock when it will reach its true value: $20″ and today Facebook worth less than 20$!

The question one can ask is: “should I buy or should I sell”. Our advice is to continue to sell and we will explain you why.

How much do you pay for one Facebook’ share?

First look at the facts: the price earning ratio of Facebook is 110 while Google is a bit less than 20. This means that Facebook is 5 times more expensive than Google.

Do you believe that the potential of Facebook is 5 times bigger than Google? We don’t think so. You can continue with other shares like Microsoft, Apple, Oracle, in other words, people that earn money for many years event if their business is not related to social networking.

Price/Earning of Google Microsoft, Apple and Facebook (17 August 2012)

Price/Earning of Google Microsoft, Apple and Facebook (17 August 2012)

How many Facebook users can we foresee within three years?

Facebook will reach 1 Billion users minus 10% of ghosts users somewhere in September 2012 but ,what is the maximum of Internet users in the world today? 2,45 Billion based on the table 1.

Let’s be optimist and let us believe that all 2012′ Internet users are registered on Facebook within 3 years!

Which revenue can Facebook expect within three years?

Based on those values, we come up with the figures stated in table 2 (without discounting any value like inflation or ghosts users): the revenue of Facebook could be of 8.377 Billion dollars Q2’2015!

If we discount the value with 3% of inflation and we remove 10% of ghosts users the revenue goes down to 6.9 Billon Dollars Q2’2015.

Be fair, the revenue per click diminishes over the time [1] and all companies listed in this study try to get a piece of the cake and Facebook won’t multiply by 2,5 their current revenue over three years even including the sacrosanct mobile ads.

By the way, Analysts forget that any company advertising on the Apple, Google Android or Microsoft Windows Mobile networks hands over 30% of its revenue while not being the master of the revenue per click! Increasing the revenue of Facebook automatically increases the revenue of the others making the Facebook stock less attractive.

Our Conclusion

Facebook is a fantastic platform, the biggest social network in the world (for the moment) but it provides no Return On Investment to their users besides a bit of Narcissism and a formidable marketing platform for their customers. As you know the customers of a platform are not the users but the advertisers for the vast majority.

We have last questions for you, it might help you to understand the challenge of the social networks for the future:

  • Do you know someone who has bought an item because a friend has “liked” an item? did you?
  • How many times have you clicked on a Facebook advertising?
  • Have you seen a difference in the price of an item if you go directly on the website or through the Facebook advertising? did you know that if you want to rent a car, clicking on a Google advertising instead of going directly on the renting car’ website gives you most of the time at least 20% discount!
  • Google search engine makes you find what you are looking for; do you use Facebook the same way?
  • Google publishes its advertising on any third-party website, Facebook is not!
  • Facebook insiders can sell stocks as ‘lock-up’ ends. “…1.91 billion more shares could flood the stock market — more than four times the 421 million shares that have been trading since Facebook’s (FB) initial public offering in May…”. We bet those persons will sell fast their ‘junk bonds’ in the coming months

We can continue the long list with but we will stop here.

We believe that there is no reason why one should buy a company more than 25 times its earnings. Would you buy a bakery or Wal-Mart more than 25 times their earnings? (see table 3).

Our valuation of Facebook stock is between 3,5$ and 4,5$,It might change if something very important occurs.

About ALT-F1

ALT-F1 is a European information technology company. We provide a portfolio of methods, IT services, software, and technology that solves critical problems for clients.

We specialize in helping clients to get rid of Hardware by implementing Cloud computing; understand their (Big) data by using innovative Business Intelligence methods; Increasing their sales by applying multi-channel Marketing and Optimising their operations by using partners innovative methods.

For more information, visit www.alt-f1.be.

 

Acronyms

Term Description
IPO Initial Public Offering http://en.wikipedia.org/wiki/Initial_public_offering
PE Price–earnings ratio http://en.wikipedia.org/wiki/Price_earnings_ratio
Market Cap Market Capitalisation http://en.wikipedia.org/wiki/Market_capitalisation
EPS Earning per share http://en.wikipedia.org/wiki/Earning_per_share

Links

Google Inc: http://www.google.com
Apple Inc.: http://www.apple.com
eBay Inc: http://www.ebay.com
Facebook Inc: http://www.facebook.com
LinkedIn Corporation: http://www.linkedin.com
Pandora Media Inc: http://www.pandora.com
Zynga Inc: http://www.zynga.com

References

[1] Cost-Per-Click – Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our Network members, decreased approximately 12% over the first quarter of 2011 and decreased approximately 6% over the fourth quarter of 2011.”. Source: http://investor.google.com/earnings/2012/Q1_google_earnings.html

Annexes

Facebook Average Revenue Per User (ARPU)

Facebook Average Revenue Per User (ARPU). Source Facebook investors relation http://investor.fb.com

Table 1: Estimated Internet in the world in 2012
2006 2011a
World population 6.5 billion 7 billion
Not using the Internetb 82% 65%
Using the Internetb 18% 35%
Users in the developing worldb 8% 22%
Users in the developed worldb 10% 13%
Users in Chinab 2% 8%
a Estimate. b Share of world population.
Source: International Telecommunications Union.[1]
Table 2 Facebook earnings by Q2’2015 per Continent (in Billion dollars). Based on Facebook Average Revenue Per User (ARPU)
USA & Canada Europe Asia Rest of the world TOTAL Revenue
 4.928  2.2  0.847  $0.400  8.377
Table 3: Stock market data (17 August 2012)
Ticker Name Price Market Cap (in Mil) PE EPS 52 week High vs. Price
GOOG Google Inc 672.87 $220,051 19.95 33.73 -0.26%
AAPL Apple Inc. 636.34 $596,509 14.96 42.54 -1.19%
EBAY eBay Inc 45.79 $59,008 16.06 2.85 -0.78%
FB Facebook Inc 19.87 $42,569 110.93 0.18 -55.84%
LNKD LinkedIn Corporation 103.99 $10,992 889.18 0.12 -13.79%
P Pandora Media Inc 9.71 $1,618 #N/A -0.21 -39.24%
ZNGA Zynga Inc 3 $2,279 #N/A -0.73 -81.14%
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4 thoughts on “Facebook analyst says their stock worth less than 5 dollars!

  1. Pingback: Barron’s print magazine’s claiming Facebook shares are worth only $15 dollars | Abdelkrim…. yes it's me

  2. generalherald

    Stay in IT. EPS and P/E are relevant for companies that have already come to market so to speak. Facebook has the users, monetizing that is simple. The more thoughtful the monetization the better. Google’s P/E at one point was 50+ – going with your argument even if the facts were in that Google’s earnings would skyrocket, you could have never bought the stock. Making a case around P/E is short sighted. Recommend you read an introduction to investing and how capital works.

    Reply
    1. charlier

      “Facebook has the users, monetizing that is simple.”
      If is was so simple – why hasn’t it happened already? Its easy to grow a social app when you are giving everything away for free. Monetization is the hard part. duh.

      Reply

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