Mendoza School of Business

Facebook is great. But $100 billion great?

Published: February 2, 2012 / Author: Paul Monica

The following is an excerpt from an article in CNN Money that quotes Finance Professor Tim Loughran on Facebook’s initial public offering (IPO) of stock. To read the entire article visit: Facebook is great. But $100 billion great?

Facebook is a great company. It proved that in its IPO filing. A billion dollar annual profit and $3.9 billion in cash for something that didn’t even exist 10 years ago? That’s impressive.

But it’s not impressive enough to justify a $100 billion market value right out of the gate.

Sure, we don’t yet know what Facebook will be worth once it starts trading in a few months.

The company said Wednesday that it had determined that the fair value of a Facebook share stands at $29.73, as of December 31. That would value founder and CEO Mark Zuckerberg’s stake at about $16 billion.

Based on Facebook’s current share count, you could come up with a rough estimate of about $60 billion for the company’s market value.

But it seems highly likely that Facebook will price its offering above its most recent fair value estimate. As such, some experts have thrown out the $100 billion number as a possible market value.


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