If You Could Short Facebook, Would You?
- Joshua M Brown
- January 9th, 2011
If the company grew in total value from its current $50 billion to $380 billion (value of Exxon) over the next 10 years, Facebook’s stock would generate an average annual return of 22.5%. “As a maximum upside,” Prof. Ritter says, “that’s not as rosy as I think some investors might hope.”
Source: Why the Fuss Over Facebook Doesn’t Make it a Homerun (WSJ)
If you could short Facebook right now, would you?
This is obviously an academic question at this point, but a very interesting debate for investors and traders everywhere.
Let me frame it quickly and then we can fight it out in the comments section…
Facebook is currently being valued by investors in the private market at $50 billion (yes, Goldman Sachs did just invent the Private IPO, congrats guys). This is on the back of $2 billion in revenues (25 times sales!) for 2010 and a few hundred million in profits (allegedly). Facebook boasts the highest time-spent on the web and has around 600 million users – at this moment in time, they look unstoppable. The bull case is that this is just like the Google IPO in 2004 and that it will be a must-own stock for the internet era.
But. MySpace looked equally unstoppable a few short years ago and now is “the abandoned amusement park of the internet”. AOL looked the same, but cashed out their preposterously-valued stock in a “purchase” of Time Warner – it then spent the next decade losing it’s own unassailable market share and user base. Is your Facebook existence really set in stone or can people easily abandon it for the next big thing (and there always is one)? The bear case is that Facebook’s cache cachet can only diminish from here and that their walled garden will be overrun by the Barbarian hordes of competition.
The question becomes, if Facebook is already worth $50 billion a full year and change before they intend to go public, is there any upside left at all or have years worth of returns been pulled forward?
So the debate of the day is, if you could short Facebook shares here and now, would you? Or will there be plenty of hype/growth left for an IPO pop in 2012?
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.