Will Facebook Grow Into Their Valuation?

Everyone knows the metrics by now, the end of Facebook’s first day of trading: Market Cap = 112.6 bln.; 107x last twelve months (LTM) earnings; 26x LTM revenue. That's a whole lot of expectation to fulfill. 

How will Facebook grow into that valuation? What is discussed most frequently is the addition of a next generation user who will access the site via smart phone instead of computer. Facebook has also said it will add mobile advertising along with new ads to reach users when they log off Facebook’s web site. 

This strategy should be watched closely. It will be quite a feat to drive material new revenue from the domain that is currently the most active in IP litigation - smart phones - with combatants such as Apple, Microsoft and Samsung, and one that many believe, with the advent of the Yahoo/Facebook cross-litigation, will be the next front in the patent wars.  Facebook better continue to build its patent arsenal.  

As they say, "if it was easy anybody could do it." Stay tuned. 


Michael D. Friedman is Managing Director at Ocean Tomo, overseeing its Investments practice, which is composed of Investment Banking, Asset Management and Investment Research. 

Contact: MichaelFriedmanBlogs@OceanTomo.com