As a matter of fact, even in the worse case scenario, if Facebook only manages to double its revenue within two years and keeps the same margin, assuming a 36.8x multiple, Facebook would be worth $96 billion in market capitalization.
But Facebook isn’t only about advertisement! Just to mention a few examples, the company’s gaming revenue was also up by a significant 11%. And Facebook has more than $9.6 billion in cash (according to Morningstar) to spend in acquisitions of early stars, some of which could become cash cows in time.
For example, in late April Facebook revealed it had acquired Parse, in an attempt to get into a new business segment: paid tools for mobile app developers, a market that itself could be worth as much as $100 billion itself by 2015, according to Research2Guidance.
Finally, you also have Instagram, which recently launched its video service to compete against Google’s Youtube, which generates 10% of Google’s revenue. This could start producing revenue within the next two years, if Facebook succeeds at monetizing the service. In this way, even under a pessimistic scenario, Facebook seems more than well prepared to surpass the $100 billion market cap milestone within the next two years.
Zynga will benefit too
Zynga Inc (NASDAQ:ZNGA) clearly has a lot to win from Facebook’s growth. The company recently suffered a massive decrease in market capitalization, after new management announced it will not be pursuing an online gambling license in the U.S. any more and will focus on free social games instead.
The upside is that Zynga Inc (NASDAQ:ZNGA) uses Facebook for a lot of its gaming traffic, and Facebook has proven once more after the latest earnings call, that it can continue increasing its user base. Facebook’s daily average users, as a percentage of monthly active users, rose to 61% in the second quarter. Of course, Zynga Inc (NASDAQ:ZNGA) has more issues, like poor monetization, that need to be taken under consideration when making an investment thesis.
Not everyone is happy
Finally, Facebook seems to be entering businesses where Google is the main competitor: the introduction of video sharing to Instagram is a potential treat to Youtube. As a matter of fact, in the past three days, Google lost 2.8% in share price. As Facebook increases its income and launches new businesses that leverage its social network, I expect a strong negative correlation between shares of Facebook and Google to start. It seems that the market has finally woke up and saluted the birth of a new IT giant.
The article Why Facebook Is Worth More Than $100 Billion originally appeared on Fool.com and is written by Adrian Campos.
Adrian Campos has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook and Google. Adrian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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