Dubbing Facebook as the newest soon-to-crash overhyped stock has quickly become pretty much commonplace. The stock slippage below its debut price on its second day of trading certainly has not helped. At US$38 per share analysts have been quoted saying that "the stock is priced for perfection in a manner that implied that risks were negligible".
Is that the case? Let's look at some facts (December 2011):
- over 845 million monthly users worldwide (annual growth of 39%)
- 483 million daily active users (annual growth of 48%)
- US$3.7 billion in Revenue in 2011, up from US$2 billion in 2010 (annual growth of 88%)
- US$1 billion in net income in 2011, up from US$606 billion in 2010 (a 40% growth rate)
At the US$38 per share IPO price (top of the revised US$34 - US$38 range), multiples are indeed breathtakingly racy. Most striking is the >200x EV/FCF 2011A.
Now, is poor after market performance a good indicator of the prospects for a quoted company in the long run? Not if you look at Amazon. Jeff Bezos' company was underwater for the best part of the three months that followed its IPO. And as this very useful NYTimes visualization reminds us, the three year post IPO track record of value creation was nothing short of spectacular.
Yes, there are reasons not to believe, but being No.1 in any markey is a great think. No, it is a fantastic thing! And we are not talking about a random market here. We are talking about one the entire world seems to be validating by the hour. FB has an enormous opportunity monetizing its unique reach, relevance, social context and engagement --it is already arguably the leading online advertising company world-wide--. But also less visible ones, like in transactions and payments enabling technology. If current management do not seize those huge opporunities, a new team will be put in the driver's seat. Most probably the industry's best.
The company and its advisers may have left little room for short term outperformance, but we are not talking about an easy company to bet against. A guess? When the NYTimes updates its chart three years from today, look for FB at the top end of the chart.