Dear Reader,
Facebook, the social networking applications company, reported 4.902 billion USD of net income on revenue of 17.737 billion USD revenue in the first quarter of 2020 compared to 2.429 billion USD on 15.077 revenue for the first quarter of 2019. So net profit for Facebook grew almost 102% year on year.
Facebook's market capitalization currently stands at 576.63 billion USD.
Is Facebook fairly valued? No. I think Facebook's mid-term, 3-5 years on, intrinsic value is around 370 billion USD. Currently, Facebook trades at a trailing Price/Earnings ratio of 28.08. I think such a Price/Earnings ratio is excessive. Even for a high growth company like Facebook the Price/Earnings ratio should be around 18-22. Facebook's revenue grew by 17.6% in the first quarter of 2020 on an yearly basis.
Facebook's current growth rate simply does not justify its market capitalization. The market seems to be pricing that Facebook will develop entirely new verticals of revenue growth and will enter successfully new industries. Yes, Facebook is making attempts with Marketplace to enter internet commerce and with its cryptocurrency Libra project to enter the financial payments and transfers industry. However, Libra is facing difficulties getting clearance from global financial regulators and Amazon is a hugely entrenched leader in internet commerce. What is more, Facebook's monthly average users on all of its applications like Facebook, WhatsApp, Messenger and Instagram are almost 3 billion. The worlds' population currently stands around 7.6 billion USD. So Facebook's user growth in the future will not be so high as previously, because already almost half the world's population is on Facebook. And China with its 1.4 billion people has banned Facebook.
So, in short, I estimate Facebook is worth around 370 billion USD. And there is always the risk that the next new hot application or site will come up and take almost all users away from Facebook. The same happened years ago to Yahoo first with Google and then with Facebook and chat applications.
Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".
Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.
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.)!
Respectfully yours,
Petar Posledovich
No comments:
Post a Comment