Yawn. That's my reaction to Facebook's (Nasdaq: FB ) valuation post lockup period. Actually, make that a double yawn.
Gone are the days of Facebook as the ultra-cool 100x earnings casino chip. That ended the moment Facebook became a real public entity instead of a sexy investor fantasy. Nor have we entered the days of Facebook as the coy, unconventional, low-multiple value play a la Apple (Nasdaq: AAPL ) and Google – though, at this rate, we may get there soon.
No, for the time being, Facebook is just another reasonably-priced high growth stock. It now enters the same well-worn territory as Monster Energy (Nasdaq: MNST ) , Chipotle Mexican Grill (NYSE: CMG ) , and OpenTable (Nasdaq: OPEN ) , like its brethren Apple and Google traveled before it.
So, What is Facebook’s Current Price Tag?
Don't believe me? That's reasonable (pardon the pun). Forget about what Facebook should be trading at -- one of the hardest things about Facebook is just figuring out what the stock is currently trading at. The dual-class structure has made calculating Facebook's market cap of bit more of a challenge. Okay, not really, but numbers tend to vary significantly around the Internet, for some reason. Because of this, you should be skeptical of the multiples that people throw around for Facebook.
Therefore, I'll show you how I get it. I calculate Facebook's current price tag at $54.2817 billion. That market cap is on a fully, fully diluted basis, i.e., it includes the 576.9 million shares subject to outstanding equity awards, and the 23 million shares issued to acquire Instagram.
If you look on Yahoo! Finance and some other sites, you'll get a market cap of about $42.40 billion. That's the same number I get if I don't include the equity awards or the Instagram shares, so I assume that's how they get it.
But we can do one better. Facebook has about $10 billion in cash and marketable securities on its balance sheet, and no real debt. If we take that off, we get an enterprise value of about $44 billion.
Facebook made approximately $1 billion in free cash flow last year. That means that the stock is trading at about 44x trailing FCF, on a fully, fully diluted basis, and after taking the cash off the balance sheet. (Unlike the Street, I prefer trailing multiples and free cash flow. It's a value investor thing.)
That's in the same ballpark as other popular growth stocks, like Chipotle, Monster, and OpenTable, which trade at trailing EV/FCF ratios of 34.3, 31.35, and 28.12, respectively.
Yes, Facebook is still the most expensive of the bunch. But Facebook is arguably the company most likely to double its free cash flow in the next three years (though it's possible all will do so). As it is, it's one double away from trading at 22x FCF, a rather pedestrian multiple.
Would I buy Facebook here? No. 44x trailing FCF may be a plausible multiple for Facebook, but it’s not a particularly compelling one and, as a value investor, I wait for the fat pitch. I want to steal the company and, thus far, Mr. Market hasn't given me the opportunity.
But, if Zuckerberg continues to execute, and the stock continues to tank, I may get my chance.
After the world's most-hyped IPO turned out to be a dud, most investors probably don't even want to think about shares of Facebook. But there are things every investor needs to know about this company. We've outlined them in our newest premium research report. There's a lot more to this company than meets the eye, so read up on whether there's anything to "like" about it today, and we'll tell you whether we think Facebook deserves a place in your portfolio. Access your report by clicking here.