Our analysis of Facebook stock and IT value as of August 1, 2012, was published yesterday by CNET.
While our analysis revealed that it could take eight years for Facebook stock to return to its IPO price of $38, it reminded us of the importance of really understanding the market before you buy or sell a company.
Facebook, in essence, created a hot market for itself at its IPO - then the reality of market fundamentals came into play. Today, the stock is hovering in the low 20s.
To fully understand its current market value, we compared it to other tech leaders, and found that it is trading at four times its value.
Facebook can still create the right strategy and revenue streams to come back -- but it is trading in the public markets that live quarter-to-quarter. There is no patience. It may still achieve a future value that eclipses its market cap on the day it went public -- but that may be years from now.
The M&A market is usually more patient. But the value of an asset is still related directly to the future value to the buyer.
It is why we exhaust the possibilities in making a deal for our clients. It is more about the best match than about the best price. We ask, "Which enterprise can do the most with the company for sale -- a year from now, five years from now, and a decade from now?"
The reason is that in buying and selling companies, you look for a win-win-win. A win for the buyer, the seller and the employees.
When we read about companies that are sold for high multiples - like when Oracle bought Taleo for $1.9 billion at 5.8 times revenue, or when SAP acquired SuccessFactors for $3.37 billion at 10.7 times revenue - many people from the outside often think they paid a lot. Maybe, maybe not. We will see.
Our guess is probably not. Why? These deals are based on 1+1=3. That is, each of these companies was purchased by much larger entities that can create a better future than Taleo and SuccessFactors may have had on their own. Each company can now be part of a larger sales organization and infrastructure to catapult them to the next level.
Facebook did not have such a luxury. They made a market...but to grow they must create the next market.
It reminds us that when we make a deal, we never want it to get the last dollar - we want it to take a first leap to the beginning of 1+1=3.
Here's to the future...value.