Is Facebook Overvalued?

Yesterday, Facebook’s released the most recent update of its IPO prospectus, revealing some interesting details and insights into where the company is heading.

The company’s growth rate proved uninspiring for investors. The valuation at their current growth rate is much lower than that of their expected IPO. Facebook’s growth rate for Q1 of 2012 was 45% (year-to-year). That 45% rate is thin, considering it is down 55% from Q4 2011 (year-to-year)

Despite unimpressive growth, there were some findings to be optimistic about. Facebook reported 500 million mobile users. Many are using the mobile Facebook app, despite its notoriety for being slow and having other issues. The company also reported having 901 million active monthly users.

Advertising for Facebook was down this quarter, accounting for 82% of business compared to 87% at the end of Q1 2012. This means that Facebook is making more money through other avenues, like with payments.

It’s going to be interesting to see how Facebook performs once listed on the Nasdaq. Business Insider brings up an interesting comparison between Google and Facebook:

“For comparison, Google’s revenue is also 10X as big as Facebook’s. And Google has more cash flow than Facebook has revenue. But the market is valuing Facebook at 1/2 of Google’s value.”

Also disclosed was the details regarding Facebook’s purchase of Instagram, which was bought for $300 million in cash plus 23 million shares at 30.89 a share, bringing the total to $1,010,470,000.

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