Facebook Valuation!

Dear Reader,

Now I am going to make an attempt to value Facebook Inc., one of the two most popular internet sites with www.google.com

At Price Earnings ratio of 34.69 the valuation of Facebook looks lofty, but not so much if you consider it is a technology growth stock. Actually, Facebook is wildly profitable. Its net profit margin is in excess of 40% for the most recent(Q32017) quarter. At the current run rate the company would clock in in excess of 40 billion USD in revenue. Currently the company has a market capitalization of 520 billion USD. According to the Price Sales ratio, I would say the company is overvalued. That said, Facebook is 'printing' money, the company is extremely profitable.

So what is the true intrinsic value of Facebook Inc.? The key word for the answer is growth. The company has circa 14% of the world digital(internet) advertising market and together with Alphabet Inc(Google's parent) account for more than 50% of the global internet advertising market. Basically, the digital advertising market is a duopoly. The global internet advertising market is growing year on year in excess of 15%. As long as this growth continues Facebook Inc. price will go on rising.

In my opinion Facebook Inc. price should be around 200 USD or circa 10% above the current price of the company of 179 USD. One of the reasons for the relatively conservative estimate is that Facebook itself expects its growth to slow due to inability to place too many more adds in the users' news feed.


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Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich