Facebook’s prosperity will grow exponentially with the initial public offering – Part 1

With Facebook now in registration for an initial public offering, the question is top of mind for investors in technology stocks. Facebook generated $3.7 billion in revenue in 2011, and a cool $1 billion in net income. If the conventional wisdom is right, and Facebook goes public with a $100 billion market cap, that makes the math easy – the company would have  a P/E of 100x trailing earnings, or if you prefer, 27x trailing revenues.

But not everyone is convinced that Facebook, astonishing as it with close to 850 million users and a rapidly growing revenue base, has done enough to be worth more than, say, Boeing ($57 billion market cap, $69 billion in revenue, $4 billion in profits), Disney ($72 billion market cap, FY September 2011 revenues of $40.9 billion and $4.8 billion in profits) or Hewlett-Packard ($58 billion market cap, FY October 2011 revenues of $127.2 billion, non-GAAP net income of $10.4 billion.)

Indeed, here’s a little conundrum for you.

While Facebook grew revenues 88% in 2011, the company actually grew a more modest 54.7% in the fourth quarter; advertising in the quarter was up 44%. On a sequential basis, revenue was up 18.5% in the fourth quarter from Q1, with advertising revenue up 18.2%; compare that with a year ago when Q4 revenues were up 56.5% sequentially, and ad revenue was up 45.6%. Succumbing to the law of large numbers already?

Now let’s do a little comparison with another well-known tech company, this one based in Cupertino, rather than Menlo Park.

Apple cranked out December quarter revenue growth of 73.4% versus the same quarter a year ago, up 63.9% sequentially from the September quarter. Now, Apple is no slouch in the market capitalization department; the company as of Friday’s close was worth an astonishing $429 billion; the stock has blown past Exxon Mobil to become the most valuable public company in the world.

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Posted by Usman Khalid on Feb 6 2012. Filed under Business. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.