February 2, 2012
Facebook IPO notes
Some quick notes on the company and the IPO: * Overall: Facebook is an amazing company with some very nice numbers, even if most of them seem to have leaked previously. MAU, DAU, DAU/MAU numbers are amazing. * FB had $1.1 billion in Q4 2011 revenue, compared to $1.3 billion for Yahoo and $10.5 billion for Google * Nice margins and economies of scale with 25-30 % net margin (pre-RSU charges), but if I read the S1 correctly FB will incur $1 billion per year in charges related to restricted stock units over the next two years, likely leading to a net profit of about $1 billion 2012 (essentially flat from 2011), i.e. 10-15 % profit instead of 25-30 % next year. * Mobile is obviously under-monetized. Ads will probably be ok, but a big issue with the Apple Tax as FB's payments business could be stopped on iOS. * It is Mark Zuckerberg's company. The Class A and B shares with 1 and 10 votes make it Mark's and the insiders' company. Probably good for the Facebook service, not necessarily so for new shareholders. * From an investment perspective interesting data but not useful without a price, if the total valuation is $75-100 billion common stock investors don't have an attractive risk/reward profile IMO at 19-25x P/S and at least 75 P/E. Even if one assumes about 100 % growth in 2012. Probably not priced to perfection, but not far from. * I'd give Facebook the benefit of a doubt to build a $20 billion in annual revenue with 30 % margin business, i.e. $6.7 billion in profits. To me that is ca $130 billion in valuation.