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5 Reasons Facebook Is Worth More Than $15 a Share

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Facebook (Nasdaq: FB  ) can't seem to catch a break. Barron's recently ripped into the social-networking website operator, arguing that the stock is worth no more than $15 a share.

Fellow Fool Evan Niu sharply countered the bearish treatise, but I figured I'd count the reasons Facebook is worth far more than $15 a stub.

1. Facebook is cheaper than you think
Barron's Andrew Bary argues that Facebook is expensive. Even at $15 -- where Facebook would be valued at 24 times next year's earnings and 6 times sales -- Bary argues that it would be "no bargain price" for the world's stickiest website.

Really? Back out the $10.2 billion in cash and marketable securities it had on its balance sheet at the end of June, and Facebook at $15 would be trading closer to 18 times next year's earnings. Is that really "no bargain" for a high-margin company expected to grow its profitability at a 31% clip next year?

2. Mobile is more an opportunity than a threat
Bary thinks smaller mobile screens will make it harder for Facebook to monetize the booming popularity of its mobile app.

Gee, didn't Apple (Nasdaq: AAPL  ) just follow Samsung into making its smartphone screens bigger?

More importantly, isn't this giving short shrift to what Facebook's brilliant Sponsored Stories solves? Inserting ads into news feeds from marketers that a user's friends like is already paying off nicely. COO Sheryl Sandberg revealed during the company's second-quarter conference call that Sponsored Stories was at a run rate of $1 million a day in revenue by late June -- and half of that revenue was coming from mobile usage.

Just imagine where Sponsored Stories is now, given the presidential election and the viral nature of the connection.

3. Facebook is no MySpace
After watching the rise and fall of MySpace before Facebook -- and Friendster before that -- cynics point to the fickle nature of social networking in general.

I don't buy it. MySpace peaked in popularity five years ago with roughly 100 million users, and a lot of them were angst-riddled teens -- not a juicy market in terms of monetization. Facebook is 10 times as large, with healthier demographics. Oh, and MySpace always had competition. Friendster, Orkut, Bebo, and Facebook were just some of the many players nipping at its heels. No one is even close to Facebook now.

4. Facebook is bigger than you think
Facebook is surpassing Yahoo! (Nasdaq: YHOO  ) in terms of trailing annual revenue this quarter. Analysts see it generating 40% more revenue than Yahoo! next year. Barry Diller rocks and all, but Facebook will generate twice as much revenue as IAC (Nasdaq: IACI  ) next year.

Yes, Facebook is already worth more than either of these companies. My argument here is simply that we can't dismiss Facebook because it's so new. It's already bigger than dot-com pioneers that have been assembling diversified properties for nearly two decades, and that's just with one platform that's still early in the monetization process.

Apple -- the world's most valuable tech company -- thinks Facebook is so relevant that it integrated the social network deeper into last week's rollout of iOS 6. Good luck escaping the growing girth of Facebook in the future.

5. Search is closer than you might think
Why did Google (Nasdaq: GOOG  ) launch Google+ last year?

Do you really have to ask? Facebook is a threat to Google's search stronghold. CEO Mark Zuckerberg revealed earlier this month that his site is receiving a billion search queries a day.

Now watch it turn on the fire hose.

Zuckerberg has a team working on search now, and it's going to raise the bar. By using data from friends, Facebook should be able to deliver better restaurant, travel, and even job-listing results. Search is evolving, and Facebook is in the driver's seat.

Do you really want to be against a company that's just figuring out how to milk its user base that's quickly approaching a billion active users?

Facebook has a better shot of revisiting $30 than falling all the way down to $15. The math and the bearishness just don't add up.

A world of opportunity
There's a new premium report on Facebook detailing the opportunities and challenges in store for its shareholders. The report includes a full year of updates, so time's ticking. Check it out now.

The Motley Fool owns shares of Google, Apple, and Facebook. Motley Fool newsletter services have recommended buying shares of Apple, Facebook, and Google and creating a bull call spread position in Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He owns no shares in any of the stocks in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (7)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 25, 2012, at 7:45 PM, JAXXJAGUAR wrote:

    It may never get this low, but the stock is worth only about $9.94 per share. Growth prospects are good but the current valuation is still low.

  • Report this Comment On September 25, 2012, at 11:02 PM, hilsonvalli wrote:

    Yours is the "math that doesn't add up". You compare FB to Yahoo, Google, etc., yet assert that FB's multiples should be much higher than those companies -- forever?!

    Many companies have come up against Google in search and failed. Remember Cuil?

    No, you wouldn't.

    FB isn't going to disappear, but there's no way that the multiple doesn't compress. And at that point it will be worth way less than $15 in today's dollars. Dead money for years, for sure.

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