Facebook Friday

Friday, 18 May, 2012

The first $100 billion is easy. Now comes the hard part for Facebook. To vindicate that $100 billion valuation, investors will want to see revenue growth on a scale never before witnessed in the history of Silicon Valley. We’re talking about 25 to 30 percent a year, according to analysts. Today, Facebook is said to be earning some $5 in revenue per user per year, and just $1 in profit per user per year. Because it won’t be able to pile on another billion users anytime soon — 65 percent of the world’s population still does not use the net — the social network’s revenues can only grow by selling each of us for more money to advertisers. If it cannot do that, every quarter from now on, the share price will drop. Mark Zuckerberg won’t personally feel that pain, but an underperforming stock price will affect Facebook’s ability to hire the best and brightest, to take over the hot startups and, critically, to increase ad revenue.

Meanwhile, there’s this company that makes things people want to buy, and Andy Zaky makes the case for investing now: “We expect Apple to test $750 a share some time before the end of this coming January. That is roughly 50% higher than where the stock is trading today.” For those who understand such things, here’s his reasoning: “At $533.52 a share, Apple trades at 13x last year’s earnings and at only 10.56x our expect October earnings. Those are incredibly low valuations even for Apple. At the November 25, 2011 lows, Apple traded at a 13.13 P/E ratio. So today, Apple is trading at a lower valuation than it was at the November lows. At the June 2011 lows, Apple was trading near a 15 P/E trailing P/E ratio.”

Let’s see what kind of numbers Facebook can deliver after the opening bell on Nasdaq today.

Banksy Facebook

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