The Ultimate Pair Trade: Long Facebook (FB) and Short LinkedIn (LNKD)
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Price: $45.04 --0%
Rating Summary:
46 Buy, 17 Hold, 2 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
Rating Summary:
46 Buy, 17 Hold, 2 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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Now that the dust has settled on Facebook (Nasdaq: FB) after the disastrous IPO, valuation is "starting to look attractive," according to London-based Makor Securities.
While shares of Facebook are almost on 9x 2013 revenues, it is generating 44% of operating margins, the firm notes. It is trading at 37x 2013 earnings and 27x 2014 earnings. "These multiples appear almost reasonable given the 30%+ annual growth forecast for FB EPS over the next few years," the firm notes.
Comparing Facebook to the Google (Nasdaq: GOOG) IPO, the firm note valuations are not entirely different from Facebook today. At that time, Googld had a market cap of $52bn, selling on 12x 2005 revenues and 33x earnings. From 2005 until 2011, Google’s revenues grew from $6bn to $40bn (6.6x) and EPS from 5.7/sh to 33/sh (5.8x). While it is not possible to predict Facebook’s growth over the next 5-10 years, if the company grows half as fast at Google they would generate $18bn in revenues and EPS of $2.1/share, the firm notes. Assuming a multiple of 15x, shares would trade at about $30. On the other hand, if Facebook was to match Google's growth rate, the shares would be worth around $70 by 2020 or 15% annualized return. "In other words, buying Facebook now is akin to buy a free call option on Facebook growing at at least half the growth rate of Google," the firm said.
On the alternative side of the trade, Makor said they struggle with the valuations of peer Linkedin (Nasdaq: LNKD). "The company is selling at a significant premium to Facebook, although it is growing at a slower rate and its profitability is inferior," the firm notes.
Makor is recommending a long Facebook / short LinkedIn pair trade.
While shares of Facebook are almost on 9x 2013 revenues, it is generating 44% of operating margins, the firm notes. It is trading at 37x 2013 earnings and 27x 2014 earnings. "These multiples appear almost reasonable given the 30%+ annual growth forecast for FB EPS over the next few years," the firm notes.
Comparing Facebook to the Google (Nasdaq: GOOG) IPO, the firm note valuations are not entirely different from Facebook today. At that time, Googld had a market cap of $52bn, selling on 12x 2005 revenues and 33x earnings. From 2005 until 2011, Google’s revenues grew from $6bn to $40bn (6.6x) and EPS from 5.7/sh to 33/sh (5.8x). While it is not possible to predict Facebook’s growth over the next 5-10 years, if the company grows half as fast at Google they would generate $18bn in revenues and EPS of $2.1/share, the firm notes. Assuming a multiple of 15x, shares would trade at about $30. On the other hand, if Facebook was to match Google's growth rate, the shares would be worth around $70 by 2020 or 15% annualized return. "In other words, buying Facebook now is akin to buy a free call option on Facebook growing at at least half the growth rate of Google," the firm said.
On the alternative side of the trade, Makor said they struggle with the valuations of peer Linkedin (Nasdaq: LNKD). "The company is selling at a significant premium to Facebook, although it is growing at a slower rate and its profitability is inferior," the firm notes.
Makor is recommending a long Facebook / short LinkedIn pair trade.
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