Another Expert Claims Facebook Valuation Problem


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Just recently Facebook introduced the price range for their upcoming IPO and the $28 to $35 per share price could raise as much as $13.6 billion for the social network. While many were predicting over a $100 billion valuation for the company, these new numbers reflect somewhere between $77 and $96 billion.

According to Capstone analyst Rory Maher, slowed revenue growth, less than expected traction from premium ads, and low EBITDA margins have caused $90 billion to be a more accurate valuation. So this number turned out to be more in line with what actually came to light for Facebook stock prices (he made the calculations back in late April).

Now the Wall Street Journal has some estimates from another analyst who warns the high valuation of Facebook could be exposing investors to downside risk. He believes the stock is significantly over priced. Brian Hamilton is a chief executive at Sageworks, a company who specializes in analysis of privately owned companies, and he has offered Business Insider a little insight into how he figures Facebook is over valued.

Hamilton explains:

“Facebook is significantly overpriced and this is clear by looking at the price of the company relative to either sales or earnings,”

”Investing in the Facebook IPO may turn out to be a great investment, but right now, the stock is clearly not a bargain.”

He goes on to explain that most of the successful tech IPO's, such as Microsoft, went public with a valuation closer to a multiple of 4 times their trailing sales figures. He also explains that the trend has increased to about 10 times the sales, but that Facebook is actually asking for 25 times its trailing sales figures.

Essentially he believes there isn't enough convincing evidence that Facebook should even be valued at $90 billion. If what he's saying has any reflection on reality, it should be valued at more like $40 billion, unless I am misunderstanding his calculations. That's a huge discrepancy. I guess we should just let investors decide. We'll see on the 18th when the IPO begins.