Analysis: Making Sense of Facebook’s Valuation
Deciphering Facebook’s comprehensive valuation
Facebook (FB) has an EV or enterprise value of ~$464.1 billion. Peer companies Twitter (TWTR), PayPal (PYPL), eBay (EBAY), and Square (SQ) have EVs of ~$10.1 billion, ~$69.8 billion, ~$41.4 billion, and ~$9.4 billion, respectively.
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Facebook’s EV-to-adjusted EBITDA (enterprise value to adjusted earnings before interest, tax, depreciation, and amortization) for the trailing 12 months is 25.8x. The EV-to-estimated EBITDA for 2017 is 19.3x.
The EV-to-sales for the trailing 12 months is 13.9x while EV-to-sales is expected to be 9.2x in 2017.
Facebook’s trailing-12-month EV-to-cash flow and trailing-12-month EV-to-free cash flow are 23.9x and 32.5x, respectively.
Inside Facebook’s price metrics
With a book value per share of ~$22.9, Facebook is trading at a price-to-book value of 7.5x. Its estimated book value per share is ~$25.8 for 2017.
Its price-to-sales ratio is 15.1x while its estimated price-to-sale ratio is 12.7x for 2017.
Earnings and sales
The EPS (earnings per share) for last year came from total sales of $33.2 billion, which grew 50% annually. Sales are expected to rise to ~$39.2 billion in 2016 and ~$50.7 billion next year.
A look at Facebook’s EBITDA numbers
Facebook’s EBITDA (earnings before interest, tax, depreciation, and amortization) fell 25% to $18 billion last year. Analysts expect the company to post EBITDA of $24.1 billion.
Facebook’s shares are changing hands at a price-to-EBITDA ratio of 27.8x.
As of September 1, Facebook was the largest Internet player in terms of market capitalization globally at ~$499.6 billion. Twitter has a ~$12.4 billion market cap, PayPal ~$73.9 billion, eBay ~$38.9 billion, and Square ~$9.9 billion.
Of the 46 analysts covering Facebook, 42 have given it a “buy” recommendation, one has recommended a “sell,” and three have recommended a “hold.” Analysts’ stock price target for the company is $192.62, and the median price target for the company is $195. Facebook is trading at a discount of 11.78% to its median target.