Facebook IPO: Was it a quick success or a slow failure? – Part 4

Google, the value can be calculated by determining the worth of Android, presence of Google.com and its position, value of its other ventures like Google Map, etc. For Facebook, everything stops at Advertisement and third-party apps like Farmville. This is tricky but can be calculated.

Terminal Value is where the mind game starts for real. The value of the company in the long run can be very dodgy, especially in technology business and particularly the internet-based company.

The simple formula for determining the value is:

TV = cash flow in Year 6 / (r – g)

In the formula, “r” equals the long-term discount rate, and “g” equals the company’s long-term growth rate (assumed to smooth and flatten over time).

For a company like Facebook it is easy to make a business like Google, benchmark for its performance. This is all helpful in comparing Facebook’s share to its competition in the future. Since both have their share price in the same $30 to $50 price range, it becomes even easier.

The think that messes up Facebook’s value is services. Google launched Android and Google.com is still the king in online search and generates billions of dollars from Google Ads. Facebook has free services and might not be that promising to show a profitable venture in the near future.

Therefore, it is of utmost importance that investors’ relation and their mind set be read accurately before launching but now that FB has become a reality, the ball in the social network’s court to launch new and innovative products that actually earn them truckloads of money.

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Posted by Usman Khalid on May 26 2012. Filed under Business, Sci-Tech. 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.