Facebook’s stock price briefly hit $38, its IPO price, just before today’s opening bell. In the 15 months since it went public, the stock had certainly had its ups and downs as evidenced in this graph:
As some of you who have tracked my blog posts over the last couple of years know, I have tried to make sense of Facebook’s value and how the market has been pricing it. Given today’s news, I thought it would be useful to go back first to these earlier posts and then do a fresh valuation of the company, with updated information.
The lead up to the IPO
Facebook had perhaps the most elaborate run-up to an IPO in stock market history, with billions of dollars in transactions in the private share market, stories aplenty in the news media and even a hit movie about its founders. My first attempt at valuing Facebook was in February 2012, when I attached a value of $68 billion to its equity, with extremely generous assumptions on revenue growth and margins. In estimating this value, I assumed that Facebook would have a revenue growth path very similar to Google’s, while sustaining operating margins like Apple.
As the initial public offering drew nearer, I grew increasingly wary about the offering for two reasons. The first was the sense that many investors, especially institutional, seemed to think that the Facebook IPO was an absolute no-lose proposition, no matter what the offering price was, since momentum would carry the stock higher. In this post, from February 2012, I cautioned investors from buying into this proposition. The second was that the company and its bankers seemed to assume that they could set the terms for the offering and that the market could go along. In my experience, those who believe that they have power over markets realize otherwise, sooner rather than later.
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