Even with a monstrous $50 billion valuation, Facebook isn’t the most expensive company around. A post by Larry Cheng a couple weeks back pointed out that several large companies that have smaller market-caps than Facebook. We thought we’d go one step further: With respect to its past year’s earnings, how does Facebook stack up against some other blue-chip firms?
Let’s take a very rough look at Facebook’s earnings compared with its valuation. (These comparisons aren’t apples-to-apples, but if The Wall Street Journal can have fun with this kind of stuff, so can we.) According to Facebook documents distributed to Goldman Sachs investors and leaked to Reuters, the company made $350 million in profit for the first three quarters of 2010. Assuming the same rate of profit for the fourth quarter, that translates into $466.7 million in net income for 2010. Since Facebook commands a $50 billion valuation, the ratio of its price to the past year’s earnings is 107.
Most companies don’t command anywhere near that premium. Even consumer-electronics giant Apple has a price to earnings ratio of only 18. But there are two companies that trump Facebook in these terms. Ladies and gentelemen, meet VMWare, a company specializing in virtualization software. It trades with a trailing price-to-earnings ratio of 127, much higher than almighty Facebook.
The other firm that trumps Facebook is a true shocker. A. H. Belo, dying media institution and parent of the Dallas Morning News — a newspaper! — currently trades at a mind-boggling 215 times trailing earnings — more than twice the premium shareholders are paying for Facebook. Maybe there’s hope for traditional media after all.
Of course, VMWare doesn’t carry the exhorbitant carry cost Goldman is charging for its private placement, but it’s still pretty impressive to see any company command a price that comes close to that of Facebook. As for Belo, we frankly can’t explain why that stock is so unbelievably expensive; only two people like it on Facebook. Anyway, that’s our conclusion. Can anyone explain why we might be wrong?
mtaylor [at] observer.com | @mbrookstaylor