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 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:

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Apple Vs Google: Comparison of Quarterly Results (Infographic)

Apple and Google both had incredible quarterly results for the 3 months ended June 25th (strange quarter end date) and June 30th respectively.  They beat forecasts by significant margins, continue to expand their operations and have massive amounts of cash on their balance sheets with virtually no debt.  The infographic below presents some key figures of interest.  It is interesting to note that while Apple is almost twice the size of Google, based on Market Capitalization, their Earnings per share is virtually the same.  The majority (68%) of Apple's sales come from the iPhone and ipad , while almost all of Google's sales come from advertising.  Another interesting distinction for this quarter is that while Apple spent 2% of its gross revenues on  R&D, Google's investment in R&D was about 13%.
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20 Interesting Financial Facts About Google

One of the best ways to analyse a set of financial statements is to look at a public company’s 10-K.  The 10-k is a mandatory annual filing for all public companies’ and provides a wealth of information about the business, operational and financial information about the entity.  Google’s is particularly interesting, as most of us are intimately familiar with at least some of Google’s wide array of services, yet its business model is fairly simple and accessible.  The bulk of its revenues are derived from advertising and its expense comprise primarily of amounts paid to adsense members, employee salaries and stock compensation and maintenance of its data centres.  Whether you are considering Google as an investment or trying to glean some insight into how one of the world’s most successful companies’ operates, a review of their 10-k is interesting (it helps if you are a finance geek) and insightful reading.  Below is a review and analysis of some financial facts and figures from their 2010 10-K.
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