Is Facebook’s Valuation Justified? A Comparison of Key Financial Metrics to Apple and Google

The recent release of Facebook's S-1, the financial filings and statements that are required to be publicly available prior to filing an IPO, has created a media frenzy. The report has been dissected and analyzed extensively, financial news networks can’t seem to stop talking about it and it seems that people who have never heard of an IPO are discussing it, fittingly, on their Facebook pages.   The most controversial issue, of course, is whether Facebook is actually worth $100 Billion

Although Facebook is unique in its global reach and ubiquity, the starting point for any valuation is to compare it with similar businesses.  I have chosen Apple and Google, given the similarity of their business models and their respective global dominance, to compare certain key metrics from their financial statements:

FacebookvsGooglevsApple.jpg

The analysis demonstrates that both Apple and Google are vastly bigger based on every metric evaluated.  Apple’s revenues are 34 times that of Facebook, yet their market capitalization (valuation) is only about 4.5 times that of Facebook’s estimated value.  As such, any type of extrapolation based on Apple and Google, would result in significantly lower valuation of Facebook.  Those that believe that Facebook’s valuation is fair argue that they have unprecedented access to a highly engaged user base (theyare close to 1 Billion users,).  Additionally, they believe that Facebook has yet to start leveraging and monetizing this reach and as such have the potential for explosive growth.  Analogously, it took Google several years to come up with a revenue model, which was after they had established their dominance in search.  

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