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What Is Facebook Really Worth?

 May 09, 2012 04:18 AM

(By Street Authority) In the summer of 2004, George W. Bush and Senator John Kerry were locked in battle, seeking votes for the upcoming Presidential election. Another major event was making the headlines that summer as well: Google (Nasdaq: GOOG) was preparing to launch the most important IPO of the decade, eventually choosing to price its shares at $100 each when the stock debuted in mid-August. The stock would hit $200 by the following spring, $300 by the end of summer, and $400 by that autumn, a little more than a year after the IPO took place.

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Fast-forward to next week, and we'll be talking about the largest IPO of this decade: Facebook.

Facebook's IPO is scheduled for May 18, and based on preliminary pricing, will be valued just shy of $100 billion. That's nearly three times the value assigned to Google when it went public (and roughly half of what Google is worth today).

Should investors expect a sharp 300%, 15-month gain for Facebook, as was the case with Google? No way. That would value Facebook at nearly $400 billion, almost up to Apple's $530 billion valuation. And Apple is vastly more profitable now than Facebook will likely be five years hence.

Still, depending on where the stock opens, investors may still see solid upside -- at least according to a pair of analysts that have already come up with post-IPO price targets. Sterne Agee's Arvind Bhatia (who correctly predicted the sharp eventual pullback for Zynga (Nasdaq: ZNGA) before that IPO started trading) thinks shares of Facebook will settle in at $46. That's nicely higher than the expected pricing range of $28 to $35 a share. Wedbush Morgan's Michael Pachter thinks shares are worth $44. These analysts agree Facebook may be valued at close to $150 billion by the time the IPO dust settles. Here's why...

Sterne Agee
This firm thinks Facebook will irrevocably alter the online advertising market, just as Google did. The key factor: Facebook's 900 million monthly users, half of which log on daily. That kind of reach should enable Facebook to garner a growing slice of a growing pie. The online ad market is currently around $68 billion, but should reach $120 billion by 2015 -- a 13% annual growth rate.

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