Facebook's IPO is set to debut sometime next week, maybe Monday, and boy are people excited about it. Understandably so: What company better represents the world of social media? Or can even compare in hype?
As far as time-wasters and user-friendly stalker services go, Facebook is king of the Internet. And like true royalty, the tabloids are littered with speculation. Here's what the rumor mill has established so far:
- Facebook's IPO valuation is expected to be somewhere between $75 billion and $100 billion.
- Reports suggest Facebook's 2011 revenues -- mostly advertisements -- came in around $4 billion.
- CNBC Julie Boorstein recently tweeted, "Sources tell me Facebook's 2011 revenue was $3.8B, operating profit around $1.5B." This leaked information is basically in line with several reports heard in late 2011.
But we were thinking, with an operating margin of 39.74% (operating profit / revenue = 1.5B / 3.8B = 39.47%) is Facebook really worth a $100 billion valuation?
For those who need a reminder, a company's operating margin tells us the percentage of revenues remaining after all operating expenses are paid. Operating expenses include supplies, wages, repairs, research and development, and depreciation.
If Facebook has a 39.47% operating margin, it means it actually makes $0.3947 (before interest and taxes) for every dollar of sales.
This isn't bad, but it isn't great either.
Business section: Investing ideas
With that in mind, we wanted to identify a list of tech companies with higher operating margins than Facebook. These companies are not valued at $100 billion and above, so why is Facebook?
List sorted by operating margin. (Click here to access free, interactive tools to analyze these ideas.)
2. Check Point Software Technologies: Develops, markets, and supports a range of software, and combined hardware and software products and services for information technology (IT) security applications worldwide. Operating margin at 56.17%.
4. Linear Technology: Designs, manufactures, and markets a line of linear integrated circuits. Operating margin at 48.27%.
6. Hittite Microwave
7. NetEase.com: Engages in the development of applications, services, and other technologies for the Internet in China. Operating margin at 46.77%.
8. Dolby Laboratories
9. SolarWinds: Designs, develops, markets, sells, and supports enterprise information technology (IT) infrastructure management software to IT professionals. Operating margin at 43.25%.
10. VeriSign: Provides Internet infrastructure services to various networks worldwide. Operating margin at 42.67%
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
List compiled by Eben Esterhuizen, CFA. Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above.