Post-IPO the experts are jostling for space on Prime Time; many are saying they all knew Facebook was outrageously overvalued; or as Peter Schiff put it, “It’s the Valuation Stupid”. None are saying $38 is cheap these days. Some say they felt it in their bones. Some say it’s all about the alignment of Jupiter with Mars or perhaps the Fibonacci constellation; some are talking about Fair Value as is $38 just wasn’t “fair”. Theories abound but not many theorists were bold enough to put a number down that they might live to regret, even fewer shared their pristine ideas about what the future held in store…prior to the Big Day.
This is a range of hard-number value estimates I found trawling the internet, there are surprisingly few…there may be more, but if so they were hiding.
Prior to the IPO the average was pulled up by call options, which I guess, if someone is buying, is in a sense an estimate. I don’t imagine anyone is buying options at $60 to $70 now.
So, on average, it looks like the analysts were right, for now at least. That’s obviously a good way to do a valuation, just take the average of the analysts, and BINGO!!
Looking under the bonnet of the valuations, there is an excellent article by Aswath Damodaran in Forbes explaining the difference between “Value” and “Price”, which is about doing a poll to work out the price that everyone thinks is good and then taking a view. That’s basically how the underwriters figure out the price they will go to market at.
Another way of looking at that is the Good-Old-Boy-Wall-Street saying that value is the price you can sell something for to someone dumber than you; which is how they used to value mortgaged backed securities and synthetic collateralized debt obligations like ABACUS in the good-old-days…”mark-to-market”.
Except thanks to the magic of Facebook this time, the poll could determine not just who the dumbest person on Wall-Street is, but instead, who’s the dumbest person in the Whole Universe represented by 900 million friends!!
In that regard, I was explaining the idea of an IPO to my Facebook-addicted daughter and she asked “So how much to buy one share”? When I told her “$38” she said “Cool, I’d pay that!”
