Is Facebook Undervalued?

by Trefis Team
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No, as per Trefis Price estimate Facebook‘s (NASDAQ:FB) stock has a fair value of $208, which is in line with the current market price. The company builds products that enable people to connect and share with friends and family through mobile devices, personal computers, and other surfaces. The products are Facebook, Instagram, Whatsapp, Messenger, and Oculus. The company earns its major revenue from selling advertising placements to marketers.

In this note we discuss our stock price valuation for Facebook. You can look at our interactive dashboard analysis ~ Facebook’s valuation: Expensive or Cheap ~ for more details, and also modify our forecasts for the company’s key metrics to understand how changes impact the company’s stock price.

#1. Estimating Facebook’s Total Revenues:

  • Total Revenue increased from $27.6 billion in 2016 to $55.8 billion in 2018, and is expected to increase by 20.5% to $67.3 Billion in 2019.
  • Our Interactive Dashboard Analysis, How Does Facebook Make Money?, provides an in depth view of Facebook’s Revenues.

#2. Deriving Facebook’s Net Income:

  • Net Income increased from $10 billion in 2016 to $22 billion in 2018, and is expected to be around $25 billion in 2019.
  • This increase will likely be led by higher revenues offset by lower margin.

#3. Determining Facebook’s EPS:

  • EPS rose from $3.49 in 2016 to $7.57 in 2018, and we estimate it to be $8.17 in 2019.
  • EPS rise in 2018 can be attributed to higher Net Income and lower Shares outstanding.

#4. Estimating Facebook’s Share Price:

Our Price Estimate of $208 for Facebook’s Stock is based on our Detailed Valuation Model, and implies a 25.5x P/E Multiple on expected 2019 EPS of $8.17. Our interactive dashboard captures how Facebook compares with its competitors Google and Twitter in terms of Revenue and P/E multiple.



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