Aswath Damodaran: Facebook 'Richly Priced' [VIDEO]

It’s time to take profits in Facebook after the run-up in its share price, NYU professor Aswath Damodaran says.

Video excerpts and transcript below.

Facebook stock ‘richly priced’: Expert

Transcript:

expert and the professor of finance at nyu aswath damodaram. i have done five valuations of facebook in the last year and the lowest number i have got is $24 and the highest number i have got is $28. so the value of the company hasn’t actually wavered that much over the last year and three months. i don’t share the euphoria that people have about mobile monetization because i think they needed to do that. if they hadn’t done it, it would have been disastrous. so at $38 i think the stock is richly priced. i wouldn’t be a buyer at $38. but i’m glad i was here a year ago when the stock was at $18 and $19 when i thought it was actually a great buy. you would be a seller though, right? you would be a seller though today? i would be a seller today. professor, this is jon najarian. who in the mobile space do you think can come even close to the generation of dollars that facebook can based on what we’ve seen and where they’re going in the future? do you think there’s anybody else out there that can generate these kind of numbers? i think facebook is in a strong position in mobile media. the point i’m making is the original revenues that were forecast for facebook presumed that they would succeed in the mobile media market. so in a sense what they’ve done is as somebody described it taken away that uncertainty and that’s a good thing. facebook in many ways is a much better company today than it was a year ago, a much more solid company. it’s not as good an investment. do you think expectations have just gotten too low

Facebook’s Zuckerman: Hoodie to hero?

The FMHR traders debate whether the social media giant is really back for the long term or is Google the better buy. And Aswath Damodaran, NYU professor discusses why he “does not share the euphoria” of Facebook’s mobile monetization and says that at $38 a share, it is “richly priced,” and he “would be a seller.

Transcript:

welcome to the halftime show. it’s one minute past noon. four hours to go until the close. take a look at the major averages on this big fed day. let’s not forget, the fed statement coming this afternoon. you have got the jobs report coming later this week as well. there’s a look at the dow up 56 points. was a triple digit move early. not so much now but still a decent gain for the dow, s&p, and nasdaq. chapman unplugged. outspoken activist investor robert chapman is here live on herbalife, on icahn, on ackman, and now on soros, too. linked in set to report earnings tomorrow. with the stom already up 80%, should you get short ahead of the numbers. a trader street fight is just ahead. first, our top story is face lift. after more than a year floundering below its ipo price, facebook finally gets back above 38 bucks. but is the comeback a sign of greater things to come or will it be short lived. is facebook a better buy than google or is apple about to break out once again? we are trading the action today with n najarian, simon baker, mike santoli and stephanie link. the importance of getting back to theiimportant of getting back to the ipo is what? i think a lot of people were waiting for it to get back to the ipo price. technically to break out of here, it will be challenging. the stock is up 51%. before i was owning facebook going into earnings. i think a better position would be google. they missed their earnings on noncore assets, motorola, nexus. i think they dominate in the search and advertising. i think if you’re looking over the second half of next year, google versus facebook, i would be long going. . didn’t facebook, doc, give people every reason to be comfortable and confident about the stock going ford. it proved a lot of people wrong. they absolutely did. obviously they caught a lot of shorts. there were a number of folks that had bet against them being able to monetize mobile in the way they have. and this is the number one story in monetization of mobile right now. i mean, they are bigger and better and doing a better job than anybody else in the space because of how people use facebook. unfortunately, as we’ve talked about, for google to get there where they are, that’s a series of acquisitions for them to get there because people don’t use their mobile the same way that they use facebook. they’re not searching. they’re going to yelp, they’re going to trip advisor, going to hotels.com. they’re not going to google to search for those things and when you’re in facebook you’re getting the embedded advertising from the news your friends are sending around. that is a turning point for facebook. so simon’s point i’m not surprised to see people take some off the tanl because of the 51% run but i think if you want to get shorted, you’re making a big mistake. steph? i think $38 is going to take a long time. there’s a lot of supply. i wouldn’t be surprised just given the run but i would say this. the stock is trading at 37 times ex cash. they just grew earnings 61%. so the stock if you want to look at it on kind of a peg basis, if you will, it’s not extremely expensive, and importantly is the mobile monetization progress they have made. in my view, i have said it before, i think the operating margin improvement and the positive operating leverage as a result of those margins being better than expected is definitely different than what we saw even last quarter. i thought last quarter was okay. this one obviously it got more juice. i think the pricing power story is also very powerful. i look at apple and say this stock is so cheap, i kind of gravitate towards that as a contrarian investor — you say apple is the better buy than both facebook and goingle? i say it’s a contrarian play. it’s cheap with more expectations but i don’t think it’s going to break out until you see new product. i could see why people are adding to that position though ahead of these new products but we yet to see the products. there’s a lot more question marks, not to mention you have saturation in the smartphone market. there’s a reason why it’s cheap. i like facebook and the momentum. it may take a pause but i like that longer term. mike, facebook versus google verse apple. i think really what’s interesting — i want to go back to the initiation reports on facebook. they basically said this is a $50 stock or something like that, $55, because they can monetize mobile, because they are going to get serious about shareholder value. they wiped away all those doubts with this report but now it’s a matter of continue to show me. i still — i agree it’s not a phenomenally overvalued stock but to me it’s like when will it goat to $2 in earnings. that’s kind of what you want to hang your hat on. i think they’re roughly a long road. perception has changed more than reality with facebook. now you’re hearing it being discussed as the biggest media platform and competing for television-style ads. it was always there but now people are focusing on the positive more. it’s become as much more than just a simple show me story. it’s shown you the ability to get back to $38 but even that’s not enough i sense from the folks around this table. that you need to see even more before you’re willing to take an even bigger bet with a name that cost people a lot of money. you know what’s interesting? jon made a great point about institutional ownership being at 40%, 50% versus apple or google. i would just cite the supply overhead that just from a technical point 6 of view, it may take a little bit of time. there are still a lot of nonbelievers. look arounddesk. even the analysts who were bullish on it, mark was on fast money last evening saying he still has it a buy but not a strong buy because the shares have done so much. 40 bucks. he said a buck a share or thereabouts. the only one of the four of us i think was long this thing into it was you, steph. kudos, you were long into it, that’s right. but pete has been long this name. he’s a true believer i it. i have been late to it and so i’ve always overwritten calls so heavily that i don’t have much upside. i have like 2% upside in it all the time. and that’s been a mistake, quite frankly, because they’ve just gotten run over on this big run to the upside. our next guest has been one of the few people to get facebook’s valuation correct. here is what he said since the social media company went public. i think they will deliver revenue growth, and i think they’ll sustain margins. i’m a long-term investor. i’m willing to make this my long-term bet. it’s an option more than a traditional company, but i think it’s an option that i would buy at this price. if you look at the company now it’s very much the same company we were arguing about in may of this year. from my perspective, i think $28 is fairly decently priced. i think it’s a fairly priced stock now. i would be buying right now. let’s welcome back valuation expert and the professor of finance at nyu aswath damodaram. i have done five valuations of facebook in the last year and the lowest number i have got is $24 and the highest number i have got is $28. so the value of the company hasn’t actually wavered that much over the last year and three months. i don’t share the euphoria that people have about mobile monetization because i think they needed to do that. if they hadn’t done it, it would have been disastrous. so at $38 i think the stock is richly priced. i wouldn’t be a buyer at $38. but i’m glad i was here a year ago when the stock was at $18 and $19 when i thought it was actually a great buy. you would be a seller though, right? you would be a seller though today? i would be a seller today. professor, this is jon najarian. who in the mobile space do you think can come even close to the generation of dollars that facebook can based on what we’ve seen and where they’re going in the future? do you think there’s anybody else out there that can generate these kind of numbers? i think facebook is in a strong position in mobile media. the point i’m making is the original revenues that were forecast for facebook presumed that they would succeed in the mobile media market. so in a sense what they’ve done is as somebody described it taken away that uncertainty and that’s a good thing. facebook in many ways is a much better company today than it was a year ago, a much more solid company. it’s not as good an investment. do you think expectations have just gotten too low, unfairly so, professor? going into the earnings period, you almost couldn’t find anybody who said this thing was a buy, that it was time to get in. we’d ask people around this entire table of all the traders who come through here and few were willing to stick their neck out and say that facebook was going to blow out earnings, that it was the place to be. i think earnings announcements are the fuel that allow for this perception game to kind of get out of control. so i think expectations got set too low, especially after the first two earnings report that facebook came out with last year. and i think at this point i think expectations have finally caught up. so it’s going to be increasingly difficult for facebook to keep doing what it’s done in these last two earnings reports. yeah. simon, you’re a bull. i was a bull going into it, but they really turned the corner on a couple things. one of the criticisms was engagement. engagement actually went up when the ad went up. another one was users would go down. users went up and they blew away the numbers. in terms of their valuations and numbers you were using earlier in the year, given what we just saw, don’t you think the valuation should be a little higher? my valuation is based on an estimated revenue of $ billion to $45 million in about eight to nine years. so i think that unless they can show me something different, i think as long as they stay in the advertising game, i’m not willing to have a break through in valuation. i think i need to see something else, some other ways in which they can monetize their user base. if they can do, that then i think the sky is the limit. professor, sorry, before i let you go, the overall valuation of the market, where are we now? i think i gave the answer a month ago. i am neither a buyer or seller of the market given where t-bond rates are right now, given where interest rates are right now, i’m okay with where the market are. you’re comfortable with her we are, s&p 1692 and change. fed is going to make its statement. jobs report will come friday. guess you’ll be watching as closely as we will. absolutely. all right, professor, thanks.