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What is Correct Valuation of Facebook IPO?

Sky is the limit for earning on Internet and same has been proved correctly by Facebook. On analysis of Facebook we find correct valuation of Facebook IPO is going to be greater than 100 times historical earnings.

Is High Valuations of facebook Justified?
  • Facebook posted $3.7 billion in revenue in 2011 and $1 billion in profit.
  • It will be exploring untapped opportunities in mobile computing, and potentially other Internet services such as email and search.
This is at a much higher valuation when we consider the brick and mortar companies like Apple Inc’s (AAPL.O) 14 times and Google Inc’s (GOOG.O) 19 times.

Verdict

It can be a risky bet for the investors as stock has been priced at $38 per share and it just managed to remain above the issue price by the help of underwriters. Moreover they need to have a succession plan in place in case anything happens to Mark Zuckerberg who has been credited being a product visionary and no doubt he has done a masterful job in continually improving the Facebook experience.

However we see that Facebook has captured the social media market and has edged Orkut which had a backing of company like Google and thus in days to come we see it getting a hefty valuation provided it starts monetising its client base by serving them advertisements. 

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