Want a piece of Facebook? The social networking behemoth has finally announced that it is going public – on 18 May – and its proposed share price values the company at between $77 billion and $96 billion. “Econophysicists”, however, say the company will be subject to a stock price bubble and is vastly overvalued.
Peter Cauwels and Didier Sornette, entrepreneurial risk analysts at the Swiss Federal Institute of Technology Zurich, say that financial institutions do not publish the methods they use for valuing social networking companies. So Cauwels and Sornette developed their own model, which they have made publicly available (arxiv.org/abs/1110.1319).
The model suggests that even with the most optimistic growth forecasts, Facebook’s fundamental value is no more than $30 billion. Cauwels says that the company’s unique status as the biggest social networking start-up gives it extra potential, worth perhaps another $30 billion. “Investors should be aware that everything they pay above $30 billion is just an option on future potential and everything above $60 billion is bubble money,” he says.