Will Facebook Fall to This Price If They MISS Earnings?

Facebook’s (NASDAQ:FB) earnings are a great time to revisit the debate over the company’s true valuation. In one camp we have the emotionally charged Facebook-the-product lovers who know nothing about equity valuations. In the other camp we have people who can add and subtract while depending on fact-based research. As the old saying goes, “Never the twain shall meet.”

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A new study “Post-IPO Employment and Revenue Growth for U.S. IPOs, June 1996–2010” offers some more realistic comps for Facebook investors to chew on. Mark Hulbert applied these facts to Facebook:

IPO firms saw revenues rise 212% over the next five years.

Facebook’s latest reported revenues were $3.71 billion. If they achieve the base case scenario of 212% growth over the next 5 years, the firm will report $11.58 billion in revs. Sounds sweet until you apply …

Google’s (NASDAQ:GOOG) Price-to-Revenues of 5.51:1.

Now you get a market cap of $63.8 billion. Divide by the current number of shares and in 5 years Facebook would be worth $23.26.

Of course, Facebook (NASDAQ:FB) may be able to grow revenues faster than the post-IPO average. However, growth has slowed quickly at Facebook and the inability to monetize mobile is not an easy problem to solve. Moreover, Facebook now has strong competition from Pinterest — where monetizing social may take place at Facebook’s (NASDAQ:FB) expense.

One of Facebook’s biggest problems has been it’s greatest attribute: the site remained mostly ad and monetization free for years. Unfortunately, Facebook has essentially trained their users to use Facebook without the intent to do commerce or click on ads. I, for one, have NEVER clicked on a Facebook (NASDAQ:FB) ad since joining in 2005. Almost everyone I speak with says the exact same thing. So, before making the claim “Facebook is awesome and will monetize better than the average post-IPO firm”, dig deeper and find some rationales supporting such a bold claim. Commerce and daily deals flopped. So where do the billions come from? Maybe we will get some new answers during earnings.