Does Facebook Deserve A Premium Over Google?

Big news in the social world came from Facebook‘s chief executive Mark Zuckerberg this week.

We just passed an important milestone. For the first time ever, one billion people used Facebook in a single day” on 24 August, when one in seven people on Earth used FB to connect with their friends and family, FB’s boss argued on Friday.

When we talk about our financials, we use average numbers, but this is different.

Right, so: are these astonishing numbers priced into FB’s equity valuation? And how do FB’s key financial metrics compare with Google’s?

Google Vs Facebook

  • FB’s market cap is $256bn; its forward p/e is 83x and 53x for 2015 and 2016, respectively; its EV/Ebitda stands at 23x and 16x for 2015 and 2016, respectively. FB is expected to grow at a faster clip than Google, while maintaining a much higher operating profit (over 50%), with a capex/sales ratio in the region of 15%. Beta is 0.7.
  • Google’s market cap is $442bn; its forward p/e reads 28x and 23x for 2015 and 2016, respectively; EV/Ebitda is projected at 13x and 10x in 2015 and 2016, respectively. Google did not have a great 2014 but is bouncing back, just as we expected,  although its projected growth rate could be lower than FB’s, and its core profitability is 20 percentage points below that of FB, in spite of a capex/sales ratio at about 14%. Beta is 1.
  • So far this year, Google has outperformed Facebook by four percentage points on the stock exchange. Consider that Google now reportedly processes over 40,000 search queries each second on average, yielding over 3.5 billion daily searches, which equates to 1.27 trillion searches per year.

What these metrics suggest is that their capital allocation strategies will surely make a difference with regard to value creation.

(Alessandro Pasetti and Hedging Beta are not invested in any of the shares mentioned in this article.)

Notify of

Inline Feedbacks
View all comments