We warned of a social network tech bubble 2.0 over a year ago due to the hype and overvaluation of Facebook (FB) based on the reported deals by Goldman Sachs and a Russian investment firm--Digital Sky Technologies on the secondary gray market. At that time, the two deals valued Facebook at about $50 billion, with a 100+ price-to-earnings (PE) ratio.
Fast forward to 2012, Facebook actually went IPO on May 18 with a similar lofty vaulation - the $38-per-share IPO price valued Facebook at $104 billion--100+ times historical earnings (the company's profit for 2011 was $1 billion). Facebook stock has since plummeted 27% to $27.72 from its initial $38 a share. Bloomberg estimated the stock would need to sink another 20% to match the average PE ratio for the Nasdaq Internet Index based on estimated earnings in the next 12 months.
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