So how does Facebook get a $96 billion valuation?
Right now, it's because that's what the company says it's worth. But investors will have their say.
There was a lot of excitement Thursday afternoon when social-networking site Facebook said it might price its shares from $28 to $35 -- or as much as $11.81 billion -- when it goes public. It could mean Facebook is worth between $59.9 billion and $96 billion. The initial public offering price is expected to be set May 17, with trading set to start on May 18.
The next question is whether $28 to $35 makes sense. This is a judgment call that can be made only by the buyers of the IPO and investors once trading starts. Right now, the assumptions that would make those numbers possible suggest a pricey stock.
Here's how the deal works.
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The public offering consists of 337.4 million shares that are being sold by early investors and employees, including CEO and founder Mark Zuckerberg. Facebook is talking about making 20% to 25% of the offering available to small investors, The New York Times said late Thursday.
When the shares are sold, there will be about 2.14 billion outstanding. If the price is $35, that implies a market capitalization of about $76 billion. Add in restricted stock, options and some 22 million shares to be issued to the shareholders of Instagram, and the total swells to about 2.74 billion shares. At $35 a share, that implies a market value of about $96 billion.
Instagram is the photo-sharing service that Facebook hopes to acquire in a cash-and-stock deal valued at $944 million to $1.1 billion.
The high end of Facebook's IPO range implies a trailing price-to-earnings ratio above 70. If you assume Facebook grows net income 20% this year to about $1.2 billion, that translates into earnings per share of 43 cents. That, in turn, produces the forward P/E ratio about 80. That's lofty. Apple's forward P/E ratio is 10.8. Google's is 14.8.
Admittedly, Facebook's 2011 net income grew 64% from 2010, and 2010 was up 180% from 2009.
Investors who want in on the IPO are assuming Facebook can continue to grow rapidly. Revenue was up 78% in 2008, 186% in 2009, 154% in 2010 and 88% in 2011.
But there's no guarantee those growth rates will continue. Revenue in the first quarter of 2012 was up 37% from a year earlier but down 7.5% from the fourth quarter. The year-over-year growth rate has declined for five straight quarters.
The odds suggest that there will be some tough questions for Zuckerberg and his team and his investment bankers during the presentations the company will make to investors over the next two weeks.
Revenue and profit growth will be an issue. So will the company's rapid investment in new engineering. And there will probably be precise questions on advertising impressions and on the rates at which impressions translate into revenue for the advertisers, The Wall Street Journal noted on Wednesday (registration may be required).
The answers Facebook provides will help determine whether it is able to go public at $35.
I wouldn't give you 2 bits for it...lol
I never joined facebook...
Saw how much time others wasted on it...
Wouldn't like the idea that , Anything I posted, is being sold to others for profit...?
ipos r ponzie schemes dont buy them.
wallstreet is a scam take yur money out
How can anything without a spell check be worth 96 billion???
I wonder if they're going to give any stock to the kid they stole the idea from????
It's sad how our society has degenerated to the point where thieves, and people in general, are idolized simply because they have made a lot of money...Really sad.
ahhh, because the world is full of morons. I'm not on Facebook will never be on Facebook. I enjoy my life without such a ridiculous waste of time. Go outside and turn your computer off!
Fads are popular and far overpriced until they become out of fashion and/or are replaced by another fad.
This too will happen to Facebook.
So what's the company pay in Taxes... that's the real numbers right...NOT....
The company is only worth its product. That’s right it doesn’t have one.
We are the product, if it wasn’t for the people that have posting on FB.
They wouldn’t have anything. They sell all your information that you post.
They have the right to whatever they want once you check the box you want
To be a member.. How do you think they made all their money… it’s your information
That’s way you get all that junk mail. Just look at that stuff sometime…
Sell sell sell…
Now you know what you are worth on the open market…
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These hot movers could rise by double digits in coming months.
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