Facebook Inc (NASDAQ:FB) is now flirting with $45, trading with a market cap over $100 billion. While it’s valuation is seemingly excessive, the big question is whether or not it can still trade higher?
A bright future ahead
With 1.2 billion users, Facebook Inc (NASDAQ:FB) has the largest platform on the Internet, but the question has always been whether or not they could monetize those users.
In recent quarters, the main concern has been the monetization of mobile. Yet, during their second quarter report , mobile ad revenue grew 75% over the previous quarter, making it 41% of total ad revenue.
With 50% top-line growth, Facebook Inc (NASDAQ:FB) looks well positioned, but it’s the excitement surrounding new services that could take the company to the next level of growth.
Facebook Inc (NASDAQ:FB) is preparing to launch both a video advertising segment, and a payment system similar to PayPal. By my estimates (shown here ), Facebook Inc (NASDAQ:FB) could create $5 billion of additional revenue in its initial phases of launching these two services
Then, when you consider eBay’s guidance for $9.5 billion-$10.5 billion in PayPal annual sales by 2015 , and that Facebook Inc (NASDAQ:FB) has more daily users than viewers of the Super Bowl, these new services could lead Facebook down the path of creating Google-like revenue over the next decade.
The company’s current growth, its outlook, and its new services, are all playing a part in the company’s one-year 130% return.
How’s it stack up?
Considering Facebook’s place in its business cycle, the time in which it became a public company, and its growth, the company’s closest competitor is most likely LinkedIn Corp (NYSE:LNKD).
Both companies create large sums of revenue from advertising, but then have other services that make both companies unique.
Facebook is clearly larger with about six times as many users and five times more revenue. Yet, despite similar growth – LinkedIn Corp (NYSE:LNKD) grew revenue 59% in its last quarter – LinkedIn Corp (NYSE:LNKD) trades at 21.5 times sales compared to Facebook’s price/sales ratio of 16.6.
For social media companies, which are mostly valued on future earnings and fundamentals, price times sales is often a good metric to determine a company’s value.
While 21.5 times sales is extremely expensive, as is 16.6 for that matter, it is the standard of market excellence and optimism for social media companies. Hence, at 21.5 times sales, Facebook would have a market cap of $131 billion, or $54 a share.