Will Facebook Inc (FB) Do Better in 2013?

We think that Facebook is best compared to Google Inc (NASDAQ:GOOG), which owns the Google Plus social network, and to Linkedin Corporation (NYSE:LNKD). LinkedIn’s multiples are even higher than Facebook’s- it trades at 88 times forward earnings estimates, and that figure depends on higher earnings growth next year. It has been seeing very high revenue growth and it at least is selling viable subscription products, but we don’t think it’s a good value and believe that the market may be overvaluing it. Google carries a forward P/E of 15; this also comes with optimism for 2013 though the core Google business is improving and the company should be able to realize some efficiencies as it integrates Motorola Mobility Holdings. We’re looking forward to considering Google more closely after its next quarterly report.

Facebook can also be compared to disappointing recent IPOs Groupon Inc (NASDAQ:GRPN) and Zynga Inc (NASDAQ:ZNGA), the latter of which still uses Facebook for much of its gaming traffic. Both of these companies are struggling with profitability, and Zynga in particular is in serious trouble with the majority of its market cap being its cash position. It might be a small short- the company itself is unattractive, but there is a risk that it would be acquired by another tech company. Groupon, like Facebook, has rebounded from its lows- though the stock is still down 76% from a year ago- and its forward P/E is 20. It too is a popular short, and we’re certainly not very optimistic about the business, but there is enough of an upside if it actually hits its earnings targets that we would avoid taking any position.

We don’t think that Facebook Inc (NASDAQ:FB) is a buy for 2013. Unless the company finds a way to grow its earnings, it is going to end up significantly overvalued at the current price. While we wouldn’t completely discount the possibility of that happening- and would hesitate to actually be short- we’re not impressed with the monetization plans it has put forth since going public and don’t think investors should buy either.