Is Facebook Really Worth 40% More?

Facebook Inc. (NASDAQ: FB) has now been public for about four and a half months. It has been no secret that the social networking giant had a total failure of an initial public offering. But now that shares are still about half of the first trading day’s peak, we want to evaluate one simple yet complicated question. Is Facebook’s stock really worth almost 40% more than today’s share price?

Technically this should read 39.1%, but we are rounding up. Thomson Reuters has a consensus price target from its analyst universe of $30.38 for Facebook shares one-year out.

Facebook shares closed at $21.83 on Wednesday and investors are still getting all sorts of mixed messages from analysts and market pundits. Barron’s laid out the case for it to fall to $15 in what was nothing short of a blasting article.

After the company’s most recent “gifts” initiative, we saw that Topeka Capital gave an additional value of $2.00 per share on a conservative basis. Facebook shares were worth close to the same value at the time, so that only comes to not quite $24.00 on the stock.

All in all, the official analyst ratings still have many Buy and Outperform ratings. On September 21, we saw two analysts initiate coverage with a mixed fanfare: started as Buy at Cantor Fitzgerald and started as Hold at Deutsche Bank Securities.

It is worth noting that Morgan Stanley, the chief IPO underwriting firm, cut Facebook’s price target to $32 from $38 after the price had fallen so much. That being said, the $32 target is still above that $30.38 consensus target. Around the same time came a price target cut from J.P. Morgan, where the $45 prior target was chopped by one-third, all the way down to $30, for Facebook. Shares were well under $20 at the time.

Just this week, about the best that BofA/Merrill Lynch could come up with for the third-quarter earnings is that shares could be expected to be volatile.

Facebook shares did get a bounce when Mark Zuckerberg finally appeared for the first time last month. Now we have shares trading sideways this week, mostly in a $21.50 to $22.00 price range.

Facebook may now have 1 billion users, but that was expected. Facebook investors likely will have to wait to see how the earnings report comes out before the next major move. Thomson Reuters has estimates of $0.48 EPS and just over $4.9 billion in revenue for 2012 and $0.62 EPS and about $6.3 billion for 2013.

It is important to consider that Facebook’s market value is still worth about $47 billion as of now. If Facebook is worth almost 40% more, then its implied market cap would be about $65 billion.

JON C. OGG