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Facebook IPO: Company Has a Valuation Problem, Skeptic Says - MarketBeat - WSJ
By Steven Russolillo
Facebook’s valuation is “significantly overpriced” when compared to other tech giants, says Brian Hamilton, chief executive at Sageworks, a firm that analyses privately-held companies.
Last week, Facebook set the price range for initial public offering at $28 to $35 a share, targeting a valuation as rich as $96 billion. That would be a record debut for an American company.
For instance, when Microsoft went public, its valuation was over $500 million and its trailing annual sales were $140 million, a multiple of about 4, he says.
The average valuation of a tech company in recent years has been around four to ten times its trailing sales figures, Hamilton says. By comparison, Facebook is asking for 25 times sales.
“Facebook is significantly overpriced and this is clear by looking at the price of the company relative to either sales or earnings,” Hamilton says. ”
Investing in the Facebook IPO may turn out to be a great investment, but right now, the stock is clearly not a bargain.”
Wall Street analysts have started releasing their views on Facebook, which is scheduled to begin trading on May 18.
The consensus has been overwhelming bullish, so far.
But Hamilton maintains Facebook has a valuation problem. He even attempts to put Facebook’s valuation into perspective by comparing it to Apple, the most valuable company by market capitalization in the world.
“If Apple, which manufactures tangible products, was valued at a multiple comparable to Facebook, Apple’s market capitalization/value today would be approximately $2.7 trillion,” he says.
As of Wednesday’s close, Apple had a market cap of $532 billion, according to FactSet Research.
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