If Facebook Is Worth $100 Billion, Google Looks Cheap

By Steve Birenberg

NEW YORK (Minyanville) -- The latest quarterly earnings season continues to be the dominant influence on Wall Street, but a few other events have imposed and impacted trading in media and communications stocks. In particular, the Facebook IPO filing has taken center stage. Facebook will not begin trading for a couple of months, but an active market for the shares in private transactions strongly suggests that when it does come public, it will be valued at near $100 billion.

Growing more than 50% annually with $3.5 billion in revenues and over $1 billion in operating profit, $100 billion is extremely generous but probably about right given historic valuations of major Internet IPOs. I have received a lot of questions from friends and clients about buying Facebook, but with the stock likely to rise sharply from its IPO price, taking the valuation well north of $100 billion, it is hard to make a recommendation.

More from Minyanville Can Facebook's Lowliest Millionaires Afford to Settle Down? Wireless Broadband, Mobile Still Driving Media Industry Verizon and Redbox Take a Shot at Netflix, Facebook Faces Its Critics

Basically, until it starts trading, we do not know what price you will pay for Facebook. Unless you are very wealthy and an important client of one of the underwriters, you will not be able to buy Facebook at the IPO price. I would buy it at the IPO price but probably not too much higher.

One stock I would buy based on Facebook's IPO is Google(GOOG). Google is valued at $195 billion but has about $45 billion in cash. If Facebook is worth at least $100 billion, what is Google worth? Google is not growing nearly as fast as Facebook but did manage 25% revenue growth in its most recent "disappointing" quarter; 25% growth is nothing to sneeze at for a company that is 10 times the size of Facebook.

Valuing stocks is subjective, but I think it is fair to believe that if Facebook is valued at $100 billion or more, Google is worth a lot more than $200 billion. Investors seem to agree as the Facebook IPO filing coincided with the bottom in Google shares following its slide on the earnings report. Google shares have rallied about 8%. I think upside to over $700 is easily doable if the company reports just an in-line clean quarter at its next report in April.

Another winner off the Facebook IPO has been Zynga(ZNGA). I bought a small amount of Zynga just below its offering price of $10. The shares soared about 30% after Facebook's filing indicated that Zynga represented 12% of Facebook's revenue in 2011. Since Zynga provides two revenue streams to Facebook, a share of Zynga's own revenue and advertisng time Zynga buys on Facebook, it is hard to say if the 12% figure confirms that Zynga's December quarter was better than expected.