Once Facebook shares begin to trade in the public market - where most of us would get our initial opportunity to buy the stock - the price could go anywhere in the blink of an eye.
But the first thing professional investors pencil out is what they think a company is actually worth. That calculation is all about growth potential and earnings power. Facebook scores highly on both counts.
The IPO documents confirm that Facebook already makes a lot of money and continues to grow rapidly, a rare and coveted combination in public stock markets. Facebook’s commercial trajectory - and the fact that the company so dominates a business it practically invented - make comparisons difficult.
The only obvious point of reference is Google Inc.’s initial stock offering in 2004, an event that was every bit as big as Facebook’s IPO promises to become. More on that in a minute.
First, take a look at how much money Facebook makes. The company earned $1 billion in 2011, just its eighth year in business. Even more compelling, Facebook’s operations actually generated more than $1.5 billion in cash last year. Best of all: Facebook earned only $155 million in cash from its operations two years earlier. That important measure had increased by a factor of 10 in just two years.
Revenues at Facebook have also grown rapidly, from $777 million in 2009 to $3.7 billion last year. Those numbers are impressive, but not quite so dramatic.
Facebook IPO skeptics point out that the company’s stock sale will be much more expensive than Google’s offering eight years ago, based on an estimated price in relation to the company’s revenues.
Facebook shares could be priced at slightly more than 25 times the previous year’s sales if the company achieves a $100 billion valuation - a very rich calculation indeed. Google’s IPO shares were priced at about five times sales at the Internet search giant.
