Facebook Valuation Formula

Facebook is valued at plenty
By Wall Street's high-tech cognoscenti,
Based on 1 billion friends
Times $5 each, then
Times the IPO multiple, 20.

Facebook filed its Form S-1, announcing its intention to make an initial public offering of stock in the near future; millions paused their Farmville games long enough to glean some hitherto unpublished "fun facts" about the social network, which is 28% owned by its founder, Mark Zuckerberg. Soon to be traded under the ticker symbol "FB", Facebook had 2011 revenue of $3.7 billion, a 47% operating margin and a cash balance of $3 billion. The company's social impact has been much greater, according to The Wall Street Journal:

In just eight years, Facebook has become the world's social bazaar, where friends gossip, play games and swap 250 million photos per day. It has also emerged as a potent political tool, helping to topple regimes across the Middle East last year.

Of course, there are skeptics, many of whom made their snarkiness felt on Twitter. Josh Brown, aka @ReformedBroker, suggested this risk disclosure: "Our business model may prove unsustainable if people realize how little time on earth they actually have." As for the IPO's $100 billion valuation, Wharton economist @JustinWolfers offers this formula: "Facebook valuation for dummies. 1 billion users. FB earns $5/year serving ads to each. NPV = annual profit x20. =$100b!" As they say, good ideas were meant to be stolen (thank you, Justin)!

UniCredit, Triple Trouble

A bank holding company that had
Two acceptable banks and one bad,
Found itself, in duress,
On the whole, valued less
Than the sum of its pieces would add.

"Is it time for a breakup of UniCredit?" asks The Wall Street Journal's Heard on the Street column. UniCredit, an international bank based in Italy, has a third of its operations in Germany and Austria, and another third in the emerging markets of Central and Eastern Europe. Right now, though, it's the home country that investors focus on, where the bank has €40 billion exposure to Italian government bonds, equal to 90% of its equity. As a result, UniCredit trades "at a substantial discount to the sum of its parts." At this rate, writer Simon Nixon's tongue-in-cheek suggestion to rebrand the bank as "EineKredit" could only help.