Regardless of whether Facebook “sticks” (is not a fad that fades away), as an investment, the company is, simply put, a joke. Today’s IPO, which priced at $38 per share, values the company at around $104 billion. With about $1 billion in earnings over the past year, this valuation makes the price-to-earnings (P/E) ratio over 100. This is a valuation that gives me flashbacks to the tech bubble of 2000, when analysts started inventing new valuation metrics because the current ones made the companies look so ridiculous from an investment standpoint.
One thing I have learned over the years is that the small investor never learns. I have no doubt that Facebook will be a hot deal today. When the stock starts trading around 8 a.m. pacific time, I am sure it will immediately trade to a premium. Who cares?? Unless stockholders are looking to flip the stock today, what happens in today’s trading is meaningless. As a real investment, I have never seen any company justify a 100 P/E, and I promise you, we are not seeing one today. Facebook, like all other Internet-based companies like it, depends on advertising revenues primarily. There is no way in hell that they will ever generate enough advertising revenue to make a dent in the current 100 times earnings valuation.
I would not touch this stock and you shouldn’t either.