Is Facebook worth 1/5 of Google (GOOG) ?

avatar By: IS
Date posted: 06.21.2010 (4:16 am) | Write a Comment  (8 Comments)

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We have discussed Facebook’s future IPO in the past. Even though the company is not public yet, there have been enough public transactions to get a clear idea of how much Facebook is  currently worth. That currently stands between $25-30 billion. If you look at Google’s current value, it stands at close to $159 billion. As regular readers know, I might have fallen for Google but that being said, I still think that Google is undervalued right now when you consider all of the possibilities that exist for the coming years. But for argument’s sake, let’s take the current valuations to make this analysis.

Would you prefer owning Facebook or a fifth of Google?

I think that there are many different ways to look at the question and to be honest, most of you can’t afford either:) But we could buy shares in one or the other:) Here are a few of the different things I looked at when evaluating the two companies.

Traffic

It’s not a clear question because Facebook has so much momentum right now. It is gaining thousands of new users every day and even is rumored to approach 500 million users (although Facebook officially still gives the 400 million number). In a way, Facebook is even redefining the way internet users interact with each other which even prompted the Facebook COO to predict that email is dying. I wouldn’t quite go that far but what is clear is that Facebook represents the “newer” way to use the internet. Is it by luck that Facebook was recently the most visited website (although that was only compared to Google.com, not including all of Google’s other properties such as Youtube).

Revenues

Numbers came out and according to Reuters, Facebook made $800 million in revenues last year and should be well above $1 billion this year. Certainly impressive numbers but still  far from Google’s $23.65 billion in the last year. Of course, those numbers are likely to grow much more quickly at Facebook and would certainly jump the day that Facebook put a decent effort into generating money. I don’t think anyone would say that has been a main focus of Facebook.

Focus

I think that is one of the main differences between the two companies. While Google is splitting its energy between Operating Systems, Search, Google TV, Youtube, Email, News, etc, etc.. Facebook has been truly focused on its social website and apart from smaller projects such as “Universal Logins” and a “Facebook Currency”, it has remained very focused on improving its

Time for a decision???

I know, I know, it’s time to take an actual decision. I would first try answering by saying that I’d like to buy both, they both look very attractive in my opinion. But I was pressed to take just one, I would personally go with Facebook right now. I think that at current valuations, Facebook is more attractive because even if it is trading at valuation about 5 times lower with revenues 25 times lower, the growth is simply too great to be ignored and as soon as Facebook puts some focus into revenues, it will be able to easily double its current valuations, probably even better. If Facebook simply got the same revenues per visitor as Google, there would no longer even be a question.

So now I ask you the question, which do you prefer, a fifth of Google or owning Facebook?

More on this topic (What's this?)
A Value Investors New Take On Facebook
Smart Investments in the Mobile Revolution
Read more on Facebook, Google at Wikinvest
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8 Comments

  1. Comment by The Financial Blogger — June 21, 2010 @ 11:24 am
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    I would rather go with Google ;-D

    I think the company is much more diversified than Facebook who could be eaten alive by the next “techno flavor” the very same way Facebook did with Myspace.

    I also like the fact that Google as tons of money sitting in their bank account. This means they can go through a huge recession without any problems.

  2. Comment by Matthew — June 21, 2010 @ 11:30 am
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    don’t you think that Facebook has a huge potential for advertisers since they know almost everything from their users?

  3. Comment by IS — June 21, 2010 @ 8:07 pm
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    @TFB – In that regard, I do admit that it would be possible for a new flavor to take over like what happened to MySpace. But the big big difference is that Facebook seems to improve every day and is heads and shoulders above everything else right now

    @Matthew – Yes, no doubt, Facebook has so many possibilities. You could target ads about a specific financial product to all finance students in New York City very easily and there are many many other possibilities. It’s amazing how much knowledge Facebook has about each one of us.

  4. avatar

    [...] should Facebook be really worth one/fifth of Google (GOOG)? [...]

  5. Comment by Gumby — June 22, 2010 @ 9:59 am
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    If we spend that advertising money at Google instead in alternate energy. Our energy problem would be gone by now… It is kind of ironic of watching Google going green while sucking in billions of bucks advertising meaningless ad banners that do nothing but distract my websurfing too much!!

  6. Comment by IS — June 22, 2010 @ 10:26 am
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    @Gumby – Not sure I understand what you mean. Google is a fairly green company even without its recent green investments. The banners certainly do not create too much emissions:)

  7. avatar

    [...] have been beating down Google because of its slowing growth  and even we wrote last week about Facebook’s value compared to a slower growing Google. Is that the exact truth though or is there more to it? To be certain, when we compare revenue [...]

  8. avatar

    [...] wrote about one choice a few months ago… owning Facebook or one fifth of Google (yyy). Now I have to say that the two venture capitalists that gave this opinion are both Facebook [...]

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