As the inevitable hype recedes and sanity takes hold, it is important to revist the valuation of the Facebook shares.
From the get go, the IPO issue price of $38 a share was ridiculous. To get that valuation, you would be looking at 100% earnings growth for the first two years, plus a terminal growth rate of 20%. Not going to happen in this economy.
For mine, this price was pure hubris from Facebook (or more likely, their investment banker partners, looking for fees)
Anyway, I updated my valuation, as Facebook ended up selling more shares through the IPO than was previously expressed. Due to the increase in shares (Class A and Class B) outstanding to 2,138,085,037 but with the same residual income method, cost of capital and earnings growth, I now have a share price of $17.90 per share.
Still below the current Facebook market price of $34.02 so I would expect some softening of the share price still.
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