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Facebook's IPO: Thoughts On Momentum, Pricing And Valuation (It's Still No Buy)

By Aswath Damodaran, Kerschner Family Chair in Finance Education

damodaran opinion article 1

Much as I would like to believe that the pricing of Facebook in the IPO was based upon an assessment of the fundamentals, I am a realist. Much of what passes for valuation on Wall Street and corporate boardrooms is not valuation, but pricing.

Now that the Facebook IPO is behind us, though the hype and the debate about the offering will continue for the weeks to come, it is time to step back and make an assessment of its value as a company, how it was priced and what may have gone awry.

Let’s start with this: yes, Facebook can be valued.

Facebook is a company with tremendous potential, with two key drivers of value: an immense user base and unparalleled information about these users. The question is whether they can convert this potential into profits, and if so, how quickly. In its IPO filing in February, Facebook reported 2011 pre-tax operating profits of $1.8 billion on revenues of $3.7 billion, making it, by far, the largest and most profitable of the social media companies.

Read full article as published on Forbes.com