My investment plan consists of building a portfolio of low expense index funds and Facebook is a detour in my plan. What is it about the IPO that is drawing me to it like a moth to the flame? Lets remove the emotion and go to the numbers.
Thomas Baekdal at Baekdal.com had a great Google+ post comparing it to Ford Motor Company. He wrote:
- Ford has 36 times higher revenue- Ford has 8 times higher profit- Ford has 8 times as many assets (including a much larger cash reserve)- ...but Ford is valued at only 41% of Facebook's expected market cap.
More to the point. Ford's market cap is valued at 70% of their total assets. Meaning that if Ford where to closed down today, the investors could just sell the assets and get their money back.
But Facebook is valued 1,370% higher than what they have in assets, meaning that if Facebook closed down today, we are talking serious financial loss.
This is the dot.com era all over again. Value is being determined based on activity (page views, ad impressions, users), instead of real things like... you know... money and assets.
At the high end of a projected range of $28 to $35 a share, Facebook would be valued at 99 times its earnings, a higher multiple than 99 percent of companies in the Standard & Poor’s 500 Index, according to Bloomberg Business week.
When looking at the numbers, the urge to buy this stock is fading. No matter what happens, the Facebook IPO should go down in stock market history. Look for this weeks Facebook IPO, with its stock market symbol (FB) and buy a share for me.