Here are some trailing P/Es for large-cap names, none of which take into account net cash and investments: Intel (INTC): 10.6. Microsoft (MSFT): 10.3. Apple (AAPL): 13.7. Google (GOOG): 15. Cisco (CSCO): 9. IBM: 13.6. EMC: 14.7. Dell (DELL): 6. H-P (HPQ): 5.1. On the other hand, Facebook (FB) still has a trailing P/E of 64.5.
P/E ratio, in textbook, is a way to distinguish overvalue stocks from the undervalue ones. A higher P/E ratio relative to comparable firms, typically, means that the stock has a price that is too high.
There's no surprise that people would believe this kind of P/E ratio is way too high than fair. But the question is, is it? Can Facebook be a special one, a history writer, who would redefine an industry and its"fair" ratios?
The answer largely, if not totally, depends on young Zuckerberg's ambitions and wisdom.
Products: Yes, Mark owns this website, a platform that everyone can communicate freely, a service that no one would say "no". However, where is the profit? It's one thing to be a FB user, and completely another to buy products as a result of the Facebook ads. Most recent statistics according to a Reuters survey is that 80% responses say they have never bought anything because of the Facebook ads.
The world knows that there are limits to generate revenue by ads, including Facebook themselves. It is going to enter the smart phone industry. On one hand, we can say that finally, they are making some real money, doing some real products! But on the other hand, obviously, can they really even become a player in this game? What they are challenging is Google, Apple, an industry that even Microsoft had struggled so hard to catch up. I know that Zuckerberg is smart, but is he smart enough to find a way to survive in such a competitive industry?
Global Competition: As a Chinese college student, I am a Renren user and never enjoyed Facebook. At first, I too, believe Renren is just copying Mark's ideas. But as it turns out, it does provide better service, better customer experience. This is really an awkward situation. What I am trying to say is, instead of thinking how to plug more and more ads in the webpage, Facebook should really improve their services and keep their clients.
News comes that Facebook has aiming their new targeted customers, children. I think this is a promising move. If they can make some really popular products or services and win the kids' love, parents are always difficult to turn down their kids' wishes. We can clearly see that Facebook is making ambitious move to win back investors confidence. Let's sit back and see how it goes.