I Was Wrong About Facebook Inc (FB)’s Narrative Remaining Unchanged: Aswath Damodaran

It’s rare for someone related to academia in finance or economics to come out and accept their mistake in public, but as Aswath Damodran shows us, it’s only rare not impossible. The much loved valuation expert and finance professor from Stern School of Business, NYU recently stated on his blog that he was wrong with not changing his narrative regarding Facebook Inc (NASDAQ:FB) in August 2013, and selling the stock, which he had bought when it was below $20 levels, at $45.

facebook FB logo

Damodran starts his analysis right from the beginning when Facebook Inc (NASDAQ:FB) had just gone public. He had argued then that Facebook Inc (NASDAQ:FB)’s stock was overpriced for the IPO and even though the decline in Facebook Inc (NASDAQ:FB)’s stock price vindicated him later, he now considers that the reason for the decline was Facebook Inc (NASDAQ:FB)’s investment banker not setting a narrative for the company, instead of the over-valuation theory that he suggested.

Damodran then proceeds to remind Facebook Inc (NASDAQ:FB)’s last nine quarters’ earnings figures that when the company announced its first quarterly earnings after its ’botched’ public offering, the stock plummeted by 25% in a few days. It was then that he found the company was undervalued and bought the stock when it traded below $20. Damodran mentions being ‘lucky’ for catching  Facebook Inc (NASDAQ:FB)’s stock at its lowest point as it doubled over the course of next one year.

As the professor from NYU states on his blog, he again visited Facebook Inc (NASDAQ:FB)’s valuation in August 2013 after the company’s earnings report, and as he mentions later on, made the mistake of not changing his narrative and selling the stock at $45. Facebook Inc (NASDAQ:FB) moved on to surprise analysts quarter after quarter since then by growing its already immense user base, increasing advertising revenues and improving its capital efficiency, something that Damodran significantly highlights.

Finally, he gives us the reason for him being wrong with his narrative for Facebook Inc (NASDAQ:FB). The first one in the list is him undermining Facebook Inc (NASDAQ:FB)’s continuous growth in the mobile market, which he now feels is so staggering that “there is now a very real possibility that Facebook will supplant Google as the online advertising king”. The second reason is that he didn’t expect Facebook Inc (NASDAQ:FB) to continue growing its user base the way it did. Damodaran also updates his valuation on Facebook Inc (NASDAQ:FB), giving the company’s stock a current value per share of $63 and saying that he doesn’t see the current price of $72 per share a bargain.

Disclosure: None

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!