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)
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
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
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% |
Abdelkrim... yes it's me 