The Intrinsic Value Of Facebook

974 Words Dec 1st, 2015 4 Pages
What is the intrinsic value of a Facebook share? How does this valuation compare to the price talk from underwriters? The intrinsic value of Facebook stock was very difficult to find, since the company is relatively new and has been growing at an extreme rate. Based on the most recent sale of Facebook stock via a private transaction the per share price was $44 in March. However, based on the DCF analysis by professor Aswath Damodaran the intrinsic value of a single Facebook share would be $32.44. The problem is whenever using DCF analysis; the analysis is very sensitive to all assumptions uses, which were plenty in the case of Facebook. The price talk from underwriters varied immensely within the time from of February when the Red Herring was filed, all the way to May. At the very beginning, price talks were anywhere from $20 – mid $30’s. They were set to offer 337,415,352 shares. As the broader market continued in bullish trend and momentum for the Facebook IPO became greater. Price talks now shifted to $28-$35 range. Knowing that demand for the stock was said to be growing it was noted that many IPO are priced conservative to leave room for a pop on the first day of trading. On May 11 CNBC made a statement along the lines that demand was much greater than supply for the stock. Shortly after on May 14, the price talks had now moved to $34-$38 range and now offering 421,233,615 shares, the additional shares were all of insiders. This would set the companies valuation at…
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