But is it really worth US$100B?
It takes two views to make a market, as the old trader’s saying goes, but Facebook polarises opinions like few other stocks. By all regular investment yardsticks, a US$100 billion valuation is madness. It values Facebook at slightly more than 25 times its 2011 sales. Google, a more established business and considerably more profitable, by contrast trades at six times sales. Apple, on some valuation metrics being applied to Facebook, would be worth more than US$2 trillion.
There are just as many questions concerning Facebook’s growth potential and strategy. Nor has Facebook really articulated why it needs to float on the stock market: It is not as if it needs the money. It has said that it has no specific plans for it.
Other fears concerning Facebook are the fact that fourfifths of Facebook’s users never or hardly ever click on its adverts, and a majority of users say that they do not feel safe using it to buy goods or services or trust it to protect their privacy.
And yet, and yet. Google, when it floated in 2004, was capitalised at US$23B and this was seen as an insane valuation. Most people, with the benefit of hindsight, would have piled in. Facebook is a far more established business than Google was when it floated.
Facebook, at this price, is risky. One botch-up, in which the privacy of users is badly compromised, could lacerate the stock price. Yet this is a well-run company that has attracted some of the tech industry’s smartest people to work for it. And it has massive potential: when so few of its 900 million users click on its adverts, even if only a small proportion more can be persuaded to do so the uplift to profits could be immense.
Most importantly, it has momentum. People want these shares. The buzz around this company is massive. Then again, so is the scope for disappointment.