First we gauge Facebook's approximate terminal valuation five years from now . Given its recent growth trend (around 100% in 2010 but dropped to only 37% during Q1 2012), we use what I believe to be a fairly generous 50% year-on- year revenue growth over the next five years. That would give Facebook approximately $28 billion in revenue five years from now. Using Google's ( GOOG) profit margin of 25%, this method predicts Facebook makes $7 billion in profit in 2017. Using a P/E ratio of 20 (again with Google as the benchmark -- this is higher than Google's current level), this predicts that Facebook may have a market cap of $140 billion five years from now. Without considering likely dilution due to stock options as compensation and stock issuance for acquisition purposes, the following table provides Facebook's annual return for different possible IPO market cap: IPO Market Cap (billion) IPO Price Market Cap in 2017 (billion) Annual Return $ 70.00 $ 25.55 $ 140 15% $ 80.00 $ 29.20 $ 140 12% $ 90.00 $ 32.85 $ 140 9% $ 100.00 $ 36.50 $ 140 7% $ 110.00 $ 40.15 $ 140 5% If Facebook's IPO price were $25.55, the expected five-year return is only 15%. At $38, Facebook's five-year return is about 6%. That is below S&P 500' s index's long term return of above 9%. http://seekingalpha.com/article/601251-i-told-you-so-facebook-s ipo-debut?source=yahoo
$29-32 is a fair price. Original IPO price $28-32 is pretty OK. $35 only gives retailer little juice,But they are too greedy for $38. This is why we have such an ugly show today.