Facebook Valuation Tips
May 23, 2012, 9:51 am
Filed under: Uncategorized

We note the Facebook IPO is causing some consternation. It turns out that revolutionizing scrapbooking may be worth not $104 billion as we had previously thought, but something maybe 20% lower than that. Or whatever.

This shows the hazards of working with made-up numbers wholly unrelated to any conceivable revenue scenario. Made-up numbers can change on you like that. (Hm what is the emoticon for snapping-my-fingers?)

For example, when evaluating whether to pour all my life savings into Facebook, which of course I did, I created a giant Excel spreadsheet, made up some numbers, multiplied them together, multiplied the result by 2*(RAND()-.5), and it came out $43.13. That’s howcome I knew it was a total BUY at $42. I imagine you did something similar. After all, this is just established market practice when it comes to INTERNET things.

But as we’re seeing now, the Made-Up Number System is notoriously fickle. When you’re making up numbers, 31 is as good as 42. Actually, to be more precise, if you’re working in M = {the set of made-up numbers}, 42 equals 31. As it does all other numbers. So actually all you folks who got in higher really have nothing to complain about. From a certain point of view you’ve taken no loss at all because the current price is more or less equivalent to where you bought it (in made-up numbers). What? Who’s to say it isn’t?

2 Comments so far
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Here is a good article on the subject of Facebook share valuation.

Even given very limited information, probability theory still applies and there are still better and worse estimates.

The author concludes that Facebook’s stock should trade for…$13.80.

Comment by James_G

I took an earth-warming simulation program and modified it to scientifically predict facebook’s revenue-growth and came up with very different numbers. Facebook stock is expected to rise continually unless something is done soon. According to my simulation, in june 2025 if nothing is done, we will reach a point of no return after which facebook’s share price will accelerate and never ever go down. Eventually, nobody on earth who hasn’t already got shares in facebook will be able to buy a single share. Remember you read it here first.

Comment by Anon.

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