Is Facebook Really Worth More Than $130 Billion?

A sign with the 'like' symbol stands in front of the Facebook headquarters in Menlo Park, California.
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A sign with the 'like' symbol stands in front of the Facebook headquarters in Menlo Park, California.

Ahead of its IPO, investors pour over every new SEC filing from Facebook, trying to figure out what the social networking giant is really worth.

Today two private company analysts – Lou Kerner, who runs the Social Internet Fund, and Arcstone Research’s Bo Brustkern—hosted a conference call to discuss that very issue.

Facebook’s market cap is about $100 billion based on private market transactions. But Kerner and Brustkern say that based on their analysis, that number is actually low.

Brustkern estimates Facebook’s pre-IPO enterprise value is $133 billion, its equity value is $137 billion. He projects the company’s revenue will grow to $6.7 billion this year, with $1.85 billion in net income, growing to $11.2 billion in revenue in 2013 and $3 billion in net income.

The best analogy for Facebook’s growth is Google, according to Brustkern and Kerner. Facebook’s revenue is right in line with where Google’s was six and a half years ago. Facebook waited a lot longer than Google did to go public, but looking at trailing revenue and trailing net income multiples, Facebook and Google are right in line. Based on these estimates Brustkern says Facebook shares should be worth about $56 each—they’re at $40 now.

On the conference call one big topic was what will propel Facebook’s growth. Kerner pointed to ‘Reach Generator’ – Facebook’s new tool to guarantee to brands that fans see their ads. Kerner says the announcement of this tool flew under the radar—a guarantee that 75 percent of a target audience will see an ad is huge. With people spending more and more time on mobile devices, there’s huge opportunity in making money off those people.

Questions on the call were more skeptical than Brustkernand Kerner’s rosy projections. What about Facebook’s risk factors? There’s the question of how Facebook will integrate ads into the mobile platform without annoying users. And then there’s the issue of regulation—particularly regulation of privacy issues. But more important than anything else—Facebook will have to keep innovating to keep users engaged. Brustkern and Kerner weren’t concerned – we’ll see what other investors think when the stock starts trading.

Questions? Comments?