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Facebook Valuation Nowhere Near $100 Billion: Analyst

CNBC.com
Tuesday, 14 Jun 2011 | 6:58 AM ET

Facebook is planning an IPO that could value the company at as much as $100 billion, according to CNBC sources. But not everyone is as excited by the company's listing plans. One strategist says such a sky-high valuation would force him to think twice about investing in it.

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"We learn those lessons from the dot com boom at the beginning of the decade that if you pay too much, it's just not going to work out for you," David Dietze, President and Chief Investment Strategist of Point View Financial told CNBC on Tuesday. Click here for full interview.

Dietze said a $100 billion valuation would make Facebook one of the largest companies in the world from the get-go. According to Reuters, Facebook is expected to generate $4 billion in advertising revenue in 2011, implying a valuation of 25 times sales.

He thinks a more reasonable valuation for Facebook would be a sales multiple of under 10, which would imply a value of $40 billion. "So that doesn't seem anywhere close to a 100 billion," Dietze added.

Dietze pointed to recent data from a monitoring site Inside Facebook, which showed growth in new users slowing; the social networking site added 15 percent less new users in May than it did in April. "There's no guarantee that Facebook is going to be a success going forward as it has in the past," Dietze said.

Another challenge for Facebook, he noted, is cracking the Chinese market. "Facebook is knocking on the door but they don't have entries into the Chinese markets so that still remains a problem to be resolved."

There have been a rush of technology listings in recent months, many with rich valuations, raising concerns of another tech bubble in the making. Facebook's IPO is one of the most anticipated with some likening it to Google's listing in August 2004.

But Dietze warned not all "hot" IPOs were the same.

"I still think back to 11 years ago when Yahoo first came public and it got as high as a $150 a share and that's exactly what they said about Yahoo - that this was the future of the internet. Right now it sits at $15, it's never paid a dime in dividends. So just because something is said to be the grand-daddy of them all, doesn't mean you're going to automatically make money," he said.

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