Apple vs Facebook. A lesson in investory psychology
So it will happen soon. The Facebook IPO. Let’s look at valuations and investor psychology.
Facebook. About 1B in profits. Anticipated IPO valuation 100B market cap. Post IPO trade of 150B to 200B on first day/week.
Apple. 2012 profit of 50B. Market cap 528B today.
So apple has 50 times Facebook’s profit right now. A more likely sustainable business model and future then Facebook.
Facebook will be worth 30% to 40% of Apple in market cap first week yet has 1/50th (2%) of apple’s profits.
So people are paying 100x to 200x for Facebook earnings which has questionable growth and business model versus 9 times Apple’s earnings ex-cash.
So by holding this valuation (for FB) if Facebook merely increase their profit to 4-5 billion after the 100B IPO they should be valued at same market cap as apple yet have 10% of apple’s 2012 profits.
This is investor psychology. People will buy FB now because they know it will bubble up fast. People think Apple is dead and unloved right now. Bear attacks are rampant. Shorts desperately need to kill the stock to get out of shorts they were slaughtered on.
Decide how you will play the game…