Valuing growth: Apple is growing faster than Facebook

“How should investors value growth? With Facebook now in registration for an initial public offering, the question is top of mind for investors in technology stocks,” Eric Savitz reports for Forbes.
“Facebook generated $3.7 billion in revenue in 2011, and a cool $1 billion in net income. If the conventional wisdom is right, and Facebook goes public with a $100 billion market cap, that makes the math easy – the company would have a P/E of 100x trailing earnings, or if you prefer, 27x trailing revenues,” Savitz reports. “But not everyone is convinced that Facebook, astonishing as it with close to 850 million users and a rapidly growing revenue base, has done enough to be worth more than, say, Boeing ($57 billion market cap, $69 billion in revenue, $4 billion in profits) [or] Disney ($72 billion market cap, FY September 2011 revenues of $40.9 billion and $4.8 billion in profits).”

Savitz reports, “While Facebook grew revenues 88% in 2011, the company actually grew a more modest 54.7% in the fourth quarter… Apple cranked out December quarter revenue growth of 73.4% versus the same quarter a year ago… In calendar 2011 – not their September fiscal year – Apple had revenue of $127.8 billion, and profits of $33 billion. Ergo, the company is trading at 3.4x trailing revenues, and 13x trailing profits. Back out the $100 billion or so Apple now has in cash, and the valuation drops to 2.6x revenues, and 10x revenues… So, then, the question investors will have to ask themselves is this: is a dollar of revenue or profits from Facebook really 10x more valuable than a dollar of profits from Apple?”

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