Facebook is now worth US$300 billion, 30 percent more than a year ago and three times its value when it listed in 2012.
How much of that is real value and how much is foam?
Hong Kong Economic Journal columnist Bud Ming estimates Facebook’s advertising business, its core income stream, at US$100 billion.
Since its stock market debut, Facebook has seen growth in its user numbers stabilize at 15-20 percent per annum. Ninety percent of its income come from advertising.
Given its unique selling proposition of being able to match advertising to user profiles and habits, Facebook still has a lot of room to grow the business and leverage its bargaining power to charge higher advertising rates.
Using the latest quarter as a base, its earnings power is about US$4 billion a year.
Bud Ming assigns a 25 times price-earnings multiple to reflect the growth potential and comes up with the US$100 billion price tag.
“So where does the other US$200 billion of market value come from?” he asks.
By harnessing its dominance in social media and big data collected from users, Facebook can create new income streams by partnering with players in a wide range of industries similar to Alibaba and Tencent.
This may justify the extra US$200 billion, Bud Ming writes, but to stay bullish at the current lofty level, investors “really need to use a bit of imagination”.
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