Why Facebook Inc (FB) Could Be Trading Above $70 Within One Year

Are you scared of Facebook Inc (NASDAQ:FB) because of the high PE? Don’t be! While there should be an opportunity to get into Facebook from $22 – $25, in the near future, Facebook could easily triple within the next year.

Facebook Inc. (FB)

To explain how Facebook Inc (NASDAQ:FB) will get there, we will look at LinkedIn Corp (NYSE:LNKD) as a comparison, since there are many similarities between these two social networking companies, with LinkedIn focused on Business Connections and Facebook focused on Personal Connections.

LinkedIn went public in May of 2011, and Facebook went public one year later in May of 2012. LinkedIn closed at $94.25 on May 19, 2011, and closed at $181.48 on March 22, 2013 – nearly doubling in less than two years. Facebook closed at $38.23 on May 18, 2012 and closed at $25.73 on March 22, 2013 – about a third lower than where it started. But was LinkedIn’s double straight up? No, it wasn’t, and, perhaps coincidentally, LinkedIn closed at $63.01 on Dec. 30, 2011 – about a third lower than where it started. So can it be that Facebook Inc (NASDAQ:FB) is following a similar path that LinkedIn traveled? If it is, Facebook should be trading at close to $80 by this time next year.



LNKD data by YCharts



FB data by YCharts

Comparing the two companies using some key metrics, we find some interesting facts:

Users – LinkedIn claims to have over 200 million users, but Facebook Inc (NASDAQ:FB) reported having 1.06 billion users at their latest quarterly earnings conference, and of those 1.06 billion users, 618 million are active daily users.

Earnings since going public – As you can see in the chart below, Facebook’s earnings per share have actually been more consistent than LinkedIn’s per share earnings. While the Q4 and Q5 earnings for Facebook since going public are only estimates, they are quite similar to those of LinkedIn.

Since going Public LinkedIn FaceBook
Q1 .04 .12
Q2 (.02) .12
Q3 .12 .17
Q4 .15 .13 est
Q5 .16 .14 est
Q6 .22
Q7 .35

Consider also that comScore reported that Facebook is 23% of all time spent on apps in the U.S., and one of the next biggest apps is Instagram at 3%. Therefore, since Facebook owns Instagram, more than a quarter of the time people spend on apps is spent on a Facebook app.

Also consider that Facebook Inc (NASDAQ:FB) started off the year with no ads at all on mobile, and they ended up with approximately 23% of their ads revenue coming from mobile in the fourth quarter. At the last quarterly earnings conference, Mark Zuckerberg said, “One of the products we’re most excited about is Custom Audiences, which lets marketers show their ads to exactly the right people by coupling our rich targeting capabilities with their own customer data or data from a third-party. A large retailer, for example, can send one set of ads to customers who typically buy sporting goods and a different set of ads to those who would purchase beauty products, this results in some of the best targeting available on or off line today.”