Attorney Michael de Broglio on: South Africa, Law, Politics, Attorneys, Sport, Photography, Technology, Gadgets, Media, Crime, Road Accidents Fund,
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Facebook recorded revenues of $3,7 billion in 2011, and $1 billion of that was a profit. Facebook is hoping to be the next Google, which from its first day of trading in 2004 has seen a share price increase of more than 580%. The question is going to be what price a Facebook share is going to provide value at and what price it is going to trade at.
Apple trades at 16.5 times last year’s profits, Google at 19.6 times their most recent profits, and that would then give Facebook a valuation somewhere between $15 to $20 billion. It is quite clear however that everybody is anticipating that it is going to be priced at a much higher value than the market value of $20 billion and some people are talking about $100 billion. Facebook makes an approximate profit of $1 per user, per year, and while there is no doubt that Facebook is a huge success, I simply cannot believe that it can be worthy of any value higher than that given to Google and since it can be almost guaranteed that the market is going to give it a higher multiple, my own belief is that a lot of people who buy Facebook shares now, are going to be howling in a few years’ time.
In short, while I can see Facebook increasing its profits, I don’t think $1 billion profit in one year makes a company worth $100 billion, which would mean you would need to own it for a 100 years to get your money back and even if they treble the profits next year, which should not be hard off such a low base, and particularly when they are only managing to extract $1 per user per year at the moment, then you are still going to have to wait 33 years for the company to earn the profit that a $100 billion market valuation would require. I said at the beginning of the year that I thought over 12 to 18 months my best bet would be placed on Apple and if you ask me to take a long-term view, because obviously Apple’s time will come and go, I would put my money on Google.
[I am not a registered financial advisor, and obviously before you invest in shares, you need to get appropriate advice].
Posted by Michael de Broglio on Friday 10-Feb-12
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Comments
Angelique said:
on Friday 10-Feb-12 11:22 AM
Google is far more established and I dont think you can really compare unless ofcourse you mean the Google social network profile site which you really cant because then facebook takes the cake. Google has been around for quite sometime and facebook is rather dying out with other social networks out there - I must say that facebook does come up with new 'applications/setup' like now the timeline feature... which puts facebook more exciting again but soon the hype of a timeline will die down. Guess we will just have to see!
cherise said:
on Friday 10-Feb-12 09:50 AM
Google is very well established so I dont see much of a comparison with facebook and google as there just seems to be a huge difference.
I love facebook but google is not particularly for social purposes only.
Julz said:
on Friday 10-Feb-12 09:06 AM
I think FB is overrated. Less and less people are using it lately. I too would bet on Google.
Johannesburg based attorney specializing in personal injury matters including Road Accident Fund claims and medical negligence matters. My interests include golf, reading and the internet and the way it is constantly developing. I have a passion for life and a desire for less stress!
