A great deal was made of the value of Facebook Inc. (NASDAQ: FB) as it crossed the $200 billion market cap level. As a sign of just how meaningful the milestone is, it should be highlighted by the value of the public companies it has passed by the measure. Facebook’s value has eclipsed those of International Business Machines Corp. (NYSE: IBM), Pfizer Inc. (NYSE: PFE), Oracle Corp. (NYSE: ORCL) and Coca-Cola Co. (NYSE: KO).
Facebook’s value is based on its 1.3 billion members and extraordinary revenue growth. However, it may take years for it to match the profits of Coca-Cola. In its most recently reported quarter, Coke had revenue of $12.6 billion and net income of $2.6 billion. Those numbers may be large, but they also show Coke’s dilemma. On both measures, it is no longer growing. IBM has the same problem. Its second-quarter revenue actually dropped 2% to $24.4 billion. Cost cutting allowed its net income to rise 28% to $4.1 billion. Those cuts may have come close to their limits.
The issue with Facebook’s market cap is at what level its revenue spurt will level off and when. In its most recently released quarterly statement, revenue rose 61% to $2.9 billion. Net income was $791 million, up 138%. The quarterly revenue figure was only 12% of IBM’s last quarter. To catch the maker of hardware and software in terms of revenue, Facebook’s number would need to double for each of the next three years. An even modest drop in its growth rate could push that time period out to four or five years. Between now and then, there may be at least one or two stumbles, or new barriers to Facebook’s growth. What Facebook did to other companies in terms of “disruption” could in turn happen to it.
There is a powerful argument that Facebook is too expensive, which is the odds it will never post a $20 billion quarter, or that the process could take half a decade.
READ ALSO: Is YouTube Worth More Than Twitter?
Take This Retirement Quiz To Get Matched With An Advisor Now (Sponsored)
Are you ready for retirement? Planning for retirement can be overwhelming, that’s why it could be a good idea to speak to a fiduciary financial advisor about your goals today.
Start by taking this retirement quiz right here from SmartAsset that will match you with up to 3 financial advisors that serve your area and beyond in 5 minutes. Smart Asset is now matching over 50,000 people a month.
Click here now to get started.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.