My thoughts on Facebook’s valuation

This is going to be a short post as I am at the Social Gaming Summit, but I wanted to share my feeling on why Facebook’s stock has been under pressure since the IPO as it is obviously having an effect on the social gaming ecosystem. This post is not a deep financial analysis, I will leave that to the “geniuses” on Wall Street. Instead, it is a simple observation.

Facebook is currently valued at slightly over $70 billion, after the declines since its IPO. In 2011, Facebook generated $3.7 billion in net revenue and net income of about $1 billion. Conversely, Disney currently has a market cap of slightly more than $79 billion, after several advances this week. So they have very comparable valuations.

The film Marvel’s The Avengers, which launched less than a month ago, has already generated box office receipts in excess of $1.1 billion or about 1/3 total revenue that Facebook generates in a year. Add that the movie still has legs in the box office and will have a solid life in DVD/Blu-Ray, cable, broadcast TV and merchandising, and I think you can comfortably say it will generate about 50 percent the revenue Facebook generates in a year.

Now that is only one movie in Disney’s arsenal (and I am sure there will be sequels). Let’s add in the value of the rest of their movie slate (anyone ever hear of Toy Story or Cars?), which has a major new launch this year in Brave. Then add ESPN, probably the most valuable television property. And then there is ABC, the second most popular broadcast network. And we can’t forget the theme parks, which are quite profitable even in tough economic times. And a cruise line. I think you get the picture.

Overall, Disney company made a profit of almost $5 billion last year without The Avengers. I just don’t see how you can say these companies are of comparable value. Even with strong growth, how long will it take Facebook to reach this level. Either Disney is greatly undervalued (which I doubt since people have been following it for years), or Facebook is still greatly overvalued (by the way: I am no longer affiliated with Disney and hold no shares; I just know the company pretty well and felt it was a good juxtaposition with Facebook).

Author: Lloyd Melnick

I am GM of Chumba at VGW, where I lead the Chumba Casino team. Previously, I was Director of StarsPlay, the social gaming vertical for the Stars Group. I was also Sr Dir at Zynga's social casino (including Hit It Rich! slots, Zynga Poker and our mobile games), where I led VIP CRM efforts and arranged licensing deals. I have been a central part of the senior management team (CCO, GM and CGO) at three exits (Merscom/Playdom, Playdom/Disney and Spooky Cool/Zynga) worth over $700 million. View all posts by Lloyd Melnick