Did Facebook deserve the hype?

When it comes to fundamental measures like revenue and profits, Facebook is still puny.

By The Fiscal Times May 18, 2012 5:48PM
By Yuval RosenbergThe Fiscal Times

Let's keep some perspective here. For all the superlatives being tossed around regarding the Facebook IPO -- "biggest technology IPO," "history-making," "record-breaking" -- it's worth keeping in mind just where Facebook fits among the biggest and best companies in the world.

At its IPO valuation of $38 a share and $104 billion overall, Facebook (FB) became the 23rd largest company in the U.S. by market capitalization, edging out Amazon (AMZN), which has a market cap just shy of $98 billion. Facebook shares opened for trading at $42.05, but fell back to close at $38.23.

That puts Facebook's market cap nearly at the same level as PepsiCo's (PEP) $106.5 billion.

So Facebook is definitely in the big leagues on its first day as a publicly traded company, but it has a long way to go to catch tech giants like Apple (AAPL), Microsoft (MSFT), IBM (IBM) and Google (GOOG), or even Intel (INTC) and Oracle (ORCL).

Apple remains far and away the market-size leader, with a market valuation that swung back over $500 billion in Friday's early trading. And Apple shares had lost nearly 17% from April 9 to Thursday’s close, slicing more than $120 billion from the company’s market value. In other words, Apple has lost more than the entire value of Facebook in recent weeks and yet still remains about five times as big as the undisputed king of social media.

Facebook doesn't exactly fit with those other tech names in other important ways. "Many companies with large market capitalizations tend to be mature companies with moderate but steady earnings growth," writes John Butters, senior earnings analyst for FactSet Research. That's clearly not the case with Facebook.

When it comes to more fundamental measures like revenue and profits, Facebook is still puny. True, Facebook says it had 900 million active users a month as of March 31 -- and probably has even more by now. That's a tremendous accomplishment for a website started just eight years ago by a few college kids, even if they did go to Harvard. And that worldwide familiarity with the brand has no doubt fueled the frenzy that helped Facebook and its executives and investors raise up to $18.4 billion.

Yet for 2011, Facebook's hundreds of millions of users helped the company generate $3.7 billion in revenue (85% of which came from advertisers). And it earned $1 billion in profits. At its IPO price of $38, investors are paying about 100 times Facebook's trailing earnings and 54 times its projected 2013 EPS.

Those 2011 results mean Facebook wouldn't have cracked the Fortune 500 -- the 500 largest U.S. companies by revenue. Its 2011 results would have ranked it somewhere around No. 600. (Exxon Mobil, by contrast, topped the Fortune 500 with revenue of almost $453 billion, some 122 times more than Facebook, and made $41 billion in 2011 profits.)

And those other tech giants all tower over Facebook when it comes to those fundamental measures of success. Apple, for example, had $108 billion in 2011 revenue and almost $26 billion in profits. Microsoft had $70 billion in sales last year and $23 billion in earnings. Google racked up $37.9 billion in revenue and more than $9.7 billion in profits. And Amazon.com had $48 billion in revenue, though its profits came in at just $631 million.

Right now, the story for Facebook -- and for its hopeful investors -- is all about projected growth, not actual results. Analysts on average are projecting that Facebook will grow its annual earnings per share by 38% and revenues by 35% over the next three years, according to FactSet. That’s higher than the projected growth rates for those more established tech leaders -- but lower than the expected earnings growth rates for other social media companies like Pandora (P), Groupon (GRPN), LinkedIn (LNKD) and Zynga (ZNGA).

"The market may very well enable Facebook stock to rocket ahead of its fundamentals," Brian Wieser, an analyst with the Pivotal Research Group, wrote in a mid-day note to clients. Wieser put a "sell" rating on Facebook stock. "While we consider ourselves optimistic on the company's underlying business opportunity and regard its prospects for durable success as favorable, we view shares as being 'priced for perfection,'" he wrote.

That may be the bottom line here: Facebook's market cap might put it in the ranks of some of tech's biggest companies, but whether it truly deserves to be there won't be determined for quite some time.

More from The Fiscal Times
Yuval Rosenberg is a senior editor at The Fiscal Times. Subscribe to The Fiscal Times' free newsletter.


47Comments
May 18, 2012 6:10PM
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This guy is the Ponzi of the 21st Century. He is trying to sell the public a company  that makes and produces nothing for $108 Billion.

 

This is as foolish as buying building lots on the moon.

May 18, 2012 7:01PM
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It's all a shell game, now that they have suckered people into using real money to buy into their fake monetary system, the big boys will cash out, get the suckers real money, and let the thing flounder.  Another DOT BOMB.
May 19, 2012 11:59PM
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Overhyped, overpriced, and there's nowhere with this stock to go but down the porcelain fixture...taking all the FB Kool-Aid drinkers with them.  It's Jim Jones 30+ years later...and I've no sympathy for any investor in this usless stock.
May 19, 2012 3:21PM
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Now that all the hoopla has died down FB becomes just another issue to sink with the rest of the market.
May 20, 2012 4:57AM
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There is no "durable goods" in this company.  Face book is selling what? Advertising. There needs to be money for people to spend for this to be effective. Most folks that are web savvy have learned to tune out the pop ups years ago. This IPO was one of the last ditch efforts to fleech people of the money they have left. I am not into stocks after the "08" dip. I still enjoy watching the market. Old habits die hard I guess?
May 18, 2012 6:59PM
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P.T. Would have loved Zuckerberg.......Here's a guy that doesn't charge, his 900 million end users anything. Plus his company, doesn't make a product. . . . . And yet ol' Zucky made Billions today, yes sir, Barnum would have loved this guy.
May 18, 2012 10:49PM
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All of the institutional investors and underwriters were pouring money into this stock today, so that it would not go below its IPO price of $38. It was comical looking at the live quotes for Facebook at the end of the day ... ("38.02 ... 38.01 ... 38 ... 38.01 ... 38 .... 38.02 ..." etc.)

Give it a week or so, and it'll be down around $25.
May 19, 2012 1:18AM
May 20, 2012 8:55AM
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Facebook doesn't produce anything - it is a passing fancy. Each month, Facebook becomes more dictatorial in how they deal with those that use it. They chase away some of their most important assets. Their users byt imposing penalties without warning and without cause. It is all machine driven. One day, Facebook will become a memory.

I never look at ads. It is rife with scams and people who now talk to their computers insteead of friends. It is more a part of the maturing use of technology. It provides no eCommerce solution internally - it is like a huge billboard. Trouble is - everyone is trying to sell something to each other. So, at best it serves as an attention getter - a link to those you know. Plus they limit how much exposure a poster gets.

With their changes in design and constatly new rules, they are eventually going to become just a replacement for email and a family and friend search engine. Zukerburg had a vision but it while the potential is there, his vision is limited.

May 19, 2012 2:14PM
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I agree with "Mooteeth's" comment regarding FB's IPO and word for word!  "It's all a shell game, now that they have suckered people into using real money to buy into their fake monetary system, the big boys will cash out, get the suckers real money, and let the thing flounder. Another DOT BOMB."
May 20, 2012 9:06AM
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Of course Facebook deserved the hype, they paid for it didn’t they? Let’s face it, all Facebook is is hype. They’re not a company. They’re a marketed image of a company with barely anything behind the image. It’s like a sick poetic joke, a pun, that all there is to Facebook is a face; a cartoon, a façade with nothing but 2 x 4 studs propping it up in back. Is it any wonder that Facebook’s COO, Sheryl Sandberg is on the board of Disney?

Remember the Beatles old Sargent Pepper album cover. Compare it to that picture above of Zuckerberg and his gang at the NASDAQ opening launch:


We’re Sheryl Sandberg’s lonely hearts club band,
We hope you have enjoyed the show.
We’re Sheryl’s phony Disneyland fantasy band,
She’s sorry but it’s time for her to go.

May 19, 2012 11:52PM
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Yeah, it was worth the hype - like a recent recepient given the Nobel peace prize.

Where do you go from there?

Most likely down.

 

May 19, 2012 3:31PM
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With the economy teetering on the edge of another (and this time probably even deeper downturn than 2008). The S&P 500 at nearly 1300 is not a place to be going long in the market. The banks and other institutions that Ben Bernanke has flushed with freshly printed dollars have bubbled the markets up. They will have their heads handed to them. Then they will ask for more bailouts.

 

They didn't even give us a kiss the last time they screwed us 

May 20, 2012 7:58AM
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For a company such as Facebook (social media) who has a huge privacy problem the hype is over inflated. If you can't trust a company to keep your private information safe, then you can't as an investor expect that the company will produce high profits when users bail out when their accounts are hacked,  their information, photo's or privacy is stolen and or or sold to third parties.  This is Facebook's albatross.
May 20, 2012 1:32PM
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I’ve read lots of negative comments about the user experience on Facebook. There are lots of people saying how they would never invest in Facebook. I couldn’t agree more. Except, here’s what most of you don’t realize. Your equity fund, large cap ETF,  401k plan, retirement fund, and possibly even  your government just bought your shares for you. You’re invested in Facebook whether you want to be or not. And all the billions that just went to Zuckerberg and the other Facebook insiders already came out of your collective pockets. Thanks to Wall Street and Facebook and the rest who orchestrated this IPO, you’re now between a rock and a hard place. You can either go along and support Facebook by paying additional fees and charges to protect your investment or try to defeat it and lose your original investment. In other words, you’ve been had.

 

Ponder that the next time you log on to Facebook. Then think about cancelling your account anyway. I would, but, I never had one to begin with. Trust me, this will be a lot more effective protest against Wall Street and it’s extortionary business practices  than standing on the curb in the rain in front of a bank building, waving flags and shouting slogans.

May 19, 2012 10:53PM
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Moon, said it.  What they thought they had....they no longer do.  It was a total 'con' with the IPO .... stupidly, the 'geniuses' bought in thinking they were going to 'walk' away with billions.  Now, watch the 'track' on these 'kids'...they got caught in their own 'fantasy'.  The government is coming after 'them' right now.  No 'social' 'network', now.  The kids 'gamed' and now will be sitting in their penthouse listening to the phone ring.  They got totally conned. 

May 18, 2012 11:18PM
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Ok, will someone please explain to me how to bet against fb so that I can cash out like Goldman Sachs did.
May 18, 2012 10:40PM
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Why is it "some" people come to a Financial Site/blog and do not understand simple numbers....

 

THERE WAS ALMOST "600" Million trades on FB today...At least 580+ M. we know of..

 

THAT MEANS about 300 million shares were bought, 300 million were sold....

May 20, 2012 8:37PM
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This might be the best time for the FB millionaires to start selling off their stock. At 100 times earnings, it reminds me of a time in early 2000 when the "new economy" known as the internet had about 12,000 start ups that never made a dime, yet were sold to the rubes based on "future earnings"  Yeah, right.  Most lost their shirt and only the pump and dump crowd, backed by lying bloggers who pushed the crap came out ahead.  Good luck waiting for Facebook to start paying off. 
May 19, 2012 11:58AM
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ST........Depending what Goldman had been allotted or carried for their customers purchase, and then outright sales to the markets...

 

They might have done fairly well on commissions, FMV profits and Advisory fees.?

 

If you or I had several million for outlay and the network....We probably would have done well also.

 

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