Diary of an IPO: Facebook – When Reg FD catches up

Posted by on May 25th, 2012

While the issue of the big institutions getting material information during the roadshow and the individual investors not getting the information is very problematic with respect to Reg FD, the real issue that the market should be looking at is whether there was ever a correlation between the valuation ultimately placed on the company and its earnings and revenue.

There definitely was not.  Facebook’s S1 reports revenues of $4 billion and profit of $1 billion based on an advertising business model. If we were to use the best of multiples, we would use Google, which  trades at a multiple of approximately five times advertising revenue.  This would translate to a Facebook valuation of $20 billion, which is far from $100 billion.

This is the issue that everyone should be focusing on since, at the end of the day, regardless of whether the reduction in revenues and profit was disclosed properly, Facebook is still way overvalued.