Facebook was going public last year like Twitter is doing now. And subscribers to the IPO are in positive territory right now. They have a return of 28% right now. That is really good for any share in one year! (it even gained 175% since the low at 18 dollar). Is it now a good time to invest in Facebook shares?

Belegger.nl interviewed me last year to make a call on the Facebook IPO. (Dutch). Reading back I didn’t say anything stupid. Good to know. Although I didn’t expect the Facebook share price to rise. If we look at current levels and revenues it is still ‘in the clouds’. Not anywhere realistic on the basis of good old Benjamin Graham grounds with fair value. Like I said with Twitter. You have to fill in the empty spaces of what it possibly can do. The database of knowledge and connections it can make is outrageous.

The current number is somewhere around 1.3 billion people. Facebook compared itself with a country. It is on the edge of overtaking China this very moment to become the number one country in the world. (How bizarre!).

The current valuation on the market is 120 billion dollars. This values every member just above 90 dollar. ( and yes there is a big divide between de US citizen and the one from Nepal). Compared to Twitter, Facebook has already there sales up and running and is indeed making a good progress on that. 2013 will end up somewhere around $7.4 billion in sales and EPS (Earnings per Share) of 0.72 (grand total of analyst estimates). Full year 2014 will bring in almost 10 billion in sales and 1 dollar per share profit. That’s what financial analyst expect. And so next years P/E (Price / earnings) will be 50. That is a lot. Normal it is somewhere between 10 – 25. So they still have a huge potential growth rate discounted in the shareprice.

I failed several times to oversee what kind of impact a growth rate can do to high growth companies. But then again. How big is the lock in with Facebook? I see quite a lot of people surrounding me not longer engaged to anything from Facebook. Maybe they check once in while but the amount of content uploaded seems to decrease.

Facebook has a gigantic dataset that can be used to their benefit. But in the end it still is dependable on their ad sales right now. But on a moment you don’t want to buy something. You want to be entertained by friends. It feels like what we have in Holland “teleshopping”, only really ridiculious items for unsecure people. That is weak and not sustainable for a longer period because people will get annoyed and leave. It happened before with social media platforms.

The lock-in is high for a free platform with all connections, data points and pictures inside but still. It doesn’t feel for me to be the best there can be online. I’m only waiting for the platform that will bring this new dimension. 

Back to the valuation of Facebook. That is high, with 12x next year sales and 50x next years profit. The monitization part can be increased a lot. but there is a fine balance between monitization of the product (you and me) that can run away really easy. It is in a way shifting more and more to explore more from us than ever before. No privacy will be left at all in the end. That will take time for Facebook to show off what actually can be done with all the data. Probably they can do it right now. But it is not culturally accepted right now. Meanwhile it builds up a profile that is really valuable for any company.

But only one too big a mistake and everything is ruined for Facebook.

So it must grow hard to meet the expectations of the shareholders and the same time Facebook must find a good balance to not let any members get away building this monitization machine.

I don’t see how they can outperform the current expectations with this fine balance.