If you're a sucker for revisionist history, I have three years of financials to throw your way.
Let's take a look at a fictional company's financials from 2009 through 2011, and then we'll play a little valuation exercise.
Ready? Roll out the table.
| Year | Revenue | Earnings |
|---|---|---|
| 2009 | $5.459 billion | $0.827 billion |
| 2010 | $6.562 billion | $1.838 billion |
| 2011 | $8.092 billion | $2.049 billion |
Source: Company reports.
How much would this company be worth? Revenue grew by 20% in 2010, and another 23% in 2011. There was a huge pop in profitability in 2010, though earnings climbed just 11% higher last year.
If you're hungry for a little more color, I can let you in on how this company fared during the first three months of 2012. Revenue climbed 19% to $2.135 billion pitted against the first quarter of last year, while earnings climbed less than 8% to $491 million.
Two heads aren't always better than one
If you were asked for a price tag on this growing company, you'd probably aim closer to $20 billion than $105 billion. You certainly wouldn't dream of combing both sums to arrive at $125 billion, though that's the market value of Yahoo!
That's what I did here. I combined the past three years of results at Facebook with the last three years of revenue (backing out traffic acquisition costs) and net income from Yahoo! to arrive at the three years and a quarter of combined financials.
To be fair, we also have to include a few billion in cash and Yahoo!'s sizable stakes in two Asian companies. Either way, there's no way investors would value this company at $125 billion.
This isn't a case to make Facebook's valuation seem absurdly high, though I can see where that's one conclusion. The argument I'm trying to make is that Facebook was smart for passing on Yahoo!'s $1 billion buyout offer five years ago. Even if Yahoo! had done the right thing -- leaving Facebook to manage its own growth and let things play out as they actually did -- Facebook is simply perceived as being more valuable on its own.
Timing helps, of course. One can also argue that if Facebook had gone public a year after rebuffing Yahoo! -- and accepting a beneficial investment from Microsoft
We'll see where the market settles now before making that kind of conclusion. For now, all that seems clear is that Facebook dodged a bullet by not pairing up with Yahoo!
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