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Apple's P/E ratio is 13.12 [1]. Facebook's P/E ratio is 107.66 [2]. The P/E ratio[3] is: market price per share / annual earnings per share This basically

by krigath 14y ago

Apple's P/E ratio is 13.12 [1]. Facebook's P/E ratio is 107.66 [2]. The P/E ratio[3] is: market price per share / annual earnings per share This basically means that Apple makes as much profit as their are valued at in 13.12 years, whereas it would take Facebook 107.66 years to afford to buy themselves. That doesn't make any sense, and if we assume that their P/E ratio should be roughly the same, their stock price should be around [4] 33.54/(107.66/13.12) = 4.09 USD Edit: Google's P/E ratio is 18.32, and if Facebook were to have the same P/E ratio its stock price would have to be 5.71 USD [5]. [1] http://www.google.com/finance?q=AAPL http://www.google.com/finance?q=AAPL [2] http://www.google.com/finance?q=NASDAQ:FB http://www.google.com/finance?q=NASDAQ:FB [3] http://en.wikipedia.org/wiki/PE_ratio http://en.wikipedia.org/wiki/PE_ratio [4] https://www.google.co.uk/search?q=33.54%2F(107.66%2F13.12) https://www.google.co.uk/search?q=33.54%2F(107.66%2F13.12) [5] https://www.google.co.uk/search?q=33.54%2F(107.66%2F18.32) https://www.google.co.uk/search?q=33.54%2F(107.66%2F18.32)

is74 14y ago
It makes sense if you believe that the profit will go up dramatically in the not too far future. And it looks like many people think so.
phreeza 14y ago
To be fair, Google also traded at a P/E well over 100 in the early post-IPO days. http://ycharts.com/companies/GOOG/historical_data/pe_ratio?start_month=5&start_day=21&start_year=2004&end_month=5&end_day=21&end_year=2012 http://ycharts.com/companies/GOOG/historical_data/pe_ratio?s...
- borism 14y ago
  AMZN: P/E 178.42 as of now
  - rosenweiss 14y ago
    Hugely overvalued, of course. Having wiped out competition, there is no room left for them to grow.
    - SoftwareMaven 14y ago
      I'm sure the same thing was said before they started the web services business, too, but they sure managed to find some room for growth there.
  - joeblau 14y ago
    Amazon also has a multi faceted business model. Distribution, SaaS and PaaS offerings, Hardware sales, and probably some more I'm overlooking. Facebook sells ad space to people on their chat platform that have little to zero intent to buy. The last time I saw a company (AOL) try to stuff ads in a chat client... well we all know how that went.
    - nikcub 14y ago
      But Facebook has already managed to do something that Google hasn't: have more than one source of revenue Facebook have a shitty ad product and it still generates $4b p.a and climbing, imagine how good they would be if they actually figured this stuff out
      - rehack 14y ago
        >and it still generates $4b p.a and climbing, imagine how good they would be if they actually figured this stuff out Please also consider a counter case, what if $4b revenue i.e. roughly $4 per user per year, is the best you can have for such a product. And the potential for growth of no. of users is not high, then what?
        sanxiyn 14y ago
        This seems very strange to me. There are social networks monetizing at much higher ARPU. Why is Facebook different?
      - ajross 14y ago
        I don't understand that at all. I assume your point is that Google only makes money from "ads", and that makes it a single source of revenue despite being well-diversified advertising products across a big segment of the tech industry (Youtube ads aren't the same as search ads, which are different from Android ads, etc...) But... how is facebook any different? They have ads. And... more ads, as far as I can see. What's the "more than one" source of revenue you're referring to?
        14y ago
nikcub 14y ago
Do you think taking the Facebook PE and comparing it to Apple is some major revelation that investors, or most people who read a newspaper, do not know? Every FB thread on HN has somebody pointing out PE, and then a thousand responses on what is wrong with that argument. So lets do it again. The PE works out to be so high because there is a growth expectation from Facebook's one billion users. All that it says is that the market believes the chances that Facebook will be able to grow revenue, and in the future, profit, is very high. PE is not an accurate indicator of the value of this stock. PE is used to compare mature yield stock, the type that all those Warren Buffet books talk about. With Facebook still being a young company the numbers to track are revenue growth and price/revenue.
- mikeryan 14y ago
  The PE works out to be so high because there is a growth expectation from Facebook's one billion users. All that it says is that the market believes the chances that Facebook will be able to grow revenue, and in the future, profit, is very high. Just to pick a nit. To date Facebook's P/E is high because Facebook said so. Facebook's value has never been set by an open market until about 3 or 4 hours ago. Its P/E isn't mean to be an indicator of value, its shows the markets expectations of growth. And I think a lot of people are interested to see if the "market"'s expectations are inline with their own - and to that end P/E is great.
  - emmett 14y ago
    No, Facebook's P/E has been high because people having been willing to buy the stock at a high price. Facebook can't dictate what price other people are willing to pay. It's always been set by the market, from day 1.
    - mikeryan 14y ago
      I disagree - though I concede its a semantic argument (and I wasn't referring to its private sales - which is valid), but the $38 price was dictated by FB and propped up (artificially) by MS it was not market set. I think that's reinforced by the drop we've seen today when the underwriters aren't there to prop the price up.
nextstep 14y ago
This whole argument is asinine. You need to consider that each company is floating a different number of total shares. Buying one share in FB and one share in Google would not grant you an equivalent stake in each company. You need to see how many outstanding shares each company has on the market (and what fraction of the company is public). For your purposes (comparing valuations between two companies), it would make more sense to compare market caps.
- _delirium 14y ago
  P/E ratio does already correct for number of shares: it's a ratio of your share's price to your share of the company's earnings, based on the percentage of the company your share represents. Alternately, if you take totals, it's market cap divided by earnings.
- TomatoTomato 14y ago
  Total Valuation / Total Earnings. Increasing the shares will not change the math... Think about it in your head with an imaginary company with 1, 2 or 4 shares.
  - ceejayoz 14y ago
    I've always been baffled by stock splits (and those calling for them) for this very reason. I suppose it makes sense for BRK.A's $120k shares, but for AAPL?
    - TomatoTomato 14y ago
      Stock splits are an interesting discussion. Other than psychological differences, a split really only increase liquidity and encourage more small investors but it also encourages more short term speculation. Berkshire is happy to continue to cater to the highest class of long term investors with the added benefit of being noted as the highest priced stock in the NYSE. Although, they did recently do a large split of their class B stock to allow more trading and to be included in the S&P 500.
WillyF 14y ago
You've failed to factor in growth rate. Your calculations for how long it will take to earn back the share value are assuming no growth in EPS over that timeframe. I wouldn't be surprised if Apple's EPS growth outpaces Facebook, but these numbers are completely meaningless until you at least make a stab at adding in projected growth.
- antr 14y ago
  WillyF, I'd be more than happy to know "your" expected growth rate. Facebook has not disclosed its business plan, views on the online ad market, ongoing capital expenditures and working capital needs. Who's failed to provide future growth information is Facebook, not the other way. More importantly, the Tech audience keeps looking at P/E as a valuation metric, but what rigorous and top asset managers do is look at Free Cash Flow to Equity, not Net Income. On a FCF to Equity valuation, FB IPOed at +220x. Even at a generous P/E or FCF/E ratio of 25x, Facebook's Free Cash Flow needs to go from $450m to $4,000m in the next 24-36 months. Do you think that is possible? After looking at their infrastructure needs I think not. I think it's you who has failed in the calculations.
  - WillyF 14y ago
    How can I fail in the calculations when I didn't offer any calculations? All I said is that if you're using P/E ratio as a metric without a growth rate, you're doing it wrong.
    - foolinator 14y ago
      WillyF, the last comment was a big aggressive to you to bring home the point, but I believe the main point was that even with generous predictions on their future business plan (which as far we all know doesn't exist) that facebook is overvaluated by, well, a lot.
      - antr 14y ago
        Case and point. thx
martincmartin 14y ago
... it would take Facebook 107.66 years to afford to buy themselves. Only if their earnings were constant for the next 107.66 years. People expect Facebook's earnings to continue to grow. Apple's earnings, by contrast, are considered mature.
- loceng 14y ago
  Facebook's earnings are via a controlled ecosystem. You can't maintain higher profits that way. You can have short-term higher profits that way - just not maintain them.
- muyuu 14y ago
  Yep that's the whole point. Apple's value is based on a solid record, while Facebook's is extremely speculative. They may continue to grow or they may tank. People are betting for the former, but so far with very little real knowledge of what they're doing. Tech is usually fickle and high-risk, but Facebook is in a league of its own.
- zerostar07 14y ago
  Should facebook be considered an upstart when it's been around for 8 years?
  - chucknthem 14y ago
    It's not about whether they can be considered an "upstart" it's about whether speculators think they have the potential to make much more money than they already do. Amazon for example has been around for 2 decades and have a PE ratio of 179 because they've put nearly all their profits into investing in new businesses that has a lot of potential to make more money down the road.
    - khyryk 14y ago
      Meanwhile, Facebook is investing in things like Instagram, lol.
mun2mun 14y ago
P/E ratio can also go down if annual earning per share increases. I think it is too early to comment on that. They have HUGE user base and I hope they have a good chance to increase their profit. Lets wait and see :)
tomkarlo 14y ago
There's no reason to assume their P/E should be the same. P/E is only one of a range of ways to compare company values, and there are lots of reasons (growth, risk, etc) why the P/Es of two different companies might differ. I don't agree with FB's valuation, but the argument has to be more complex than simply comparing P/Es.

by krigath 14y ago

is74 14y ago

It makes sense if you believe that the profit will go up dramatically in the not too far future. And it looks like many people think so.

phreeza 14y ago

To be fair, Google also traded at a P/E well over 100 in the early post-IPO days. http://ycharts.com/companies/GOOG/historical_data/pe_ratio?start_month=5&start_day=21&start_year=2004&end_month=5&end_day=21&end_year=2012 http://ycharts.com/companies/GOOG/historical_data/pe_ratio?s...

borism 14y ago
AMZN: P/E 178.42 as of now
- rosenweiss 14y ago
  Hugely overvalued, of course. Having wiped out competition, there is no room left for them to grow.
  - SoftwareMaven 14y ago
    I'm sure the same thing was said before they started the web services business, too, but they sure managed to find some room for growth there.
- joeblau 14y ago
  Amazon also has a multi faceted business model. Distribution, SaaS and PaaS offerings, Hardware sales, and probably some more I'm overlooking. Facebook sells ad space to people on their chat platform that have little to zero intent to buy. The last time I saw a company (AOL) try to stuff ads in a chat client... well we all know how that went.
  - nikcub 14y ago
    But Facebook has already managed to do something that Google hasn't: have more than one source of revenue Facebook have a shitty ad product and it still generates $4b p.a and climbing, imagine how good they would be if they actually figured this stuff out
    - rehack 14y ago
      >and it still generates $4b p.a and climbing, imagine how good they would be if they actually figured this stuff out Please also consider a counter case, what if $4b revenue i.e. roughly $4 per user per year, is the best you can have for such a product. And the potential for growth of no. of users is not high, then what?
      - sanxiyn 14y ago
        This seems very strange to me. There are social networks monetizing at much higher ARPU. Why is Facebook different?
    - ajross 14y ago
      I don't understand that at all. I assume your point is that Google only makes money from "ads", and that makes it a single source of revenue despite being well-diversified advertising products across a big segment of the tech industry (Youtube ads aren't the same as search ads, which are different from Android ads, etc...) But... how is facebook any different? They have ads. And... more ads, as far as I can see. What's the "more than one" source of revenue you're referring to?
      - 14y ago

nikcub 14y ago

Do you think taking the Facebook PE and comparing it to Apple is some major revelation that investors, or most people who read a newspaper, do not know? Every FB thread on HN has somebody pointing out PE, and then a thousand responses on what is wrong with that argument. So lets do it again. The PE works out to be so high because there is a growth expectation from Facebook's one billion users. All that it says is that the market believes the chances that Facebook will be able to grow revenue, and in the future, profit, is very high. PE is not an accurate indicator of the value of this stock. PE is used to compare mature yield stock, the type that all those Warren Buffet books talk about. With Facebook still being a young company the numbers to track are revenue growth and price/revenue.

mikeryan 14y ago
The PE works out to be so high because there is a growth expectation from Facebook's one billion users. All that it says is that the market believes the chances that Facebook will be able to grow revenue, and in the future, profit, is very high. Just to pick a nit. To date Facebook's P/E is high because Facebook said so. Facebook's value has never been set by an open market until about 3 or 4 hours ago. Its P/E isn't mean to be an indicator of value, its shows the markets expectations of growth. And I think a lot of people are interested to see if the "market"'s expectations are inline with their own - and to that end P/E is great.
- emmett 14y ago
  No, Facebook's P/E has been high because people having been willing to buy the stock at a high price. Facebook can't dictate what price other people are willing to pay. It's always been set by the market, from day 1.
  - mikeryan 14y ago
    I disagree - though I concede its a semantic argument (and I wasn't referring to its private sales - which is valid), but the $38 price was dictated by FB and propped up (artificially) by MS it was not market set. I think that's reinforced by the drop we've seen today when the underwriters aren't there to prop the price up.

nextstep 14y ago

This whole argument is asinine. You need to consider that each company is floating a different number of total shares. Buying one share in FB and one share in Google would not grant you an equivalent stake in each company. You need to see how many outstanding shares each company has on the market (and what fraction of the company is public). For your purposes (comparing valuations between two companies), it would make more sense to compare market caps.

_delirium 14y ago
P/E ratio does already correct for number of shares: it's a ratio of your share's price to your share of the company's earnings, based on the percentage of the company your share represents. Alternately, if you take totals, it's market cap divided by earnings.
TomatoTomato 14y ago
Total Valuation / Total Earnings. Increasing the shares will not change the math... Think about it in your head with an imaginary company with 1, 2 or 4 shares.
- ceejayoz 14y ago
  I've always been baffled by stock splits (and those calling for them) for this very reason. I suppose it makes sense for BRK.A's $120k shares, but for AAPL?
  - TomatoTomato 14y ago
    Stock splits are an interesting discussion. Other than psychological differences, a split really only increase liquidity and encourage more small investors but it also encourages more short term speculation. Berkshire is happy to continue to cater to the highest class of long term investors with the added benefit of being noted as the highest priced stock in the NYSE. Although, they did recently do a large split of their class B stock to allow more trading and to be included in the S&P 500.

WillyF 14y ago

You've failed to factor in growth rate. Your calculations for how long it will take to earn back the share value are assuming no growth in EPS over that timeframe. I wouldn't be surprised if Apple's EPS growth outpaces Facebook, but these numbers are completely meaningless until you at least make a stab at adding in projected growth.

antr 14y ago
WillyF, I'd be more than happy to know "your" expected growth rate. Facebook has not disclosed its business plan, views on the online ad market, ongoing capital expenditures and working capital needs. Who's failed to provide future growth information is Facebook, not the other way. More importantly, the Tech audience keeps looking at P/E as a valuation metric, but what rigorous and top asset managers do is look at Free Cash Flow to Equity, not Net Income. On a FCF to Equity valuation, FB IPOed at +220x. Even at a generous P/E or FCF/E ratio of 25x, Facebook's Free Cash Flow needs to go from $450m to $4,000m in the next 24-36 months. Do you think that is possible? After looking at their infrastructure needs I think not. I think it's you who has failed in the calculations.
- WillyF 14y ago
  How can I fail in the calculations when I didn't offer any calculations? All I said is that if you're using P/E ratio as a metric without a growth rate, you're doing it wrong.
  - foolinator 14y ago
    WillyF, the last comment was a big aggressive to you to bring home the point, but I believe the main point was that even with generous predictions on their future business plan (which as far we all know doesn't exist) that facebook is overvaluated by, well, a lot.
    - antr 14y ago
      Case and point. thx

martincmartin 14y ago

... it would take Facebook 107.66 years to afford to buy themselves. Only if their earnings were constant for the next 107.66 years. People expect Facebook's earnings to continue to grow. Apple's earnings, by contrast, are considered mature.

loceng 14y ago
Facebook's earnings are via a controlled ecosystem. You can't maintain higher profits that way. You can have short-term higher profits that way - just not maintain them.
muyuu 14y ago
Yep that's the whole point. Apple's value is based on a solid record, while Facebook's is extremely speculative. They may continue to grow or they may tank. People are betting for the former, but so far with very little real knowledge of what they're doing. Tech is usually fickle and high-risk, but Facebook is in a league of its own.
zerostar07 14y ago
Should facebook be considered an upstart when it's been around for 8 years?
- chucknthem 14y ago
  It's not about whether they can be considered an "upstart" it's about whether speculators think they have the potential to make much more money than they already do. Amazon for example has been around for 2 decades and have a PE ratio of 179 because they've put nearly all their profits into investing in new businesses that has a lot of potential to make more money down the road.
  - khyryk 14y ago
    Meanwhile, Facebook is investing in things like Instagram, lol.

mun2mun 14y ago

P/E ratio can also go down if annual earning per share increases. I think it is too early to comment on that. They have HUGE user base and I hope they have a good chance to increase their profit. Lets wait and see :)

tomkarlo 14y ago

There's no reason to assume their P/E should be the same. P/E is only one of a range of ways to compare company values, and there are lots of reasons (growth, risk, etc) why the P/Es of two different companies might differ. I don't agree with FB's valuation, but the argument has to be more complex than simply comparing P/Es.