What If Yahoo! Had Bought Facebook?
If you're a sucker for revisionist history, I have three years of financials to throw your way.
Let's take a look at a fictional company's financials from 2009 through 2011, and then we'll play a little valuation exercise.
Ready? Roll out the table.
|2009||$5.459 billion||$0.827 billion|
|2010||$6.562 billion||$1.838 billion|
|2011||$8.092 billion||$2.049 billion|
Source: Company reports.
How much would this company be worth? Revenue grew by 20% in 2010, and another 23% in 2011. There was a huge pop in profitability in 2010, though earnings climbed just 11% higher last year.
If you're hungry for a little more color, I can let you in on how this company fared during the first three months of 2012. Revenue climbed 19% to $2.135 billion pitted against the first quarter of last year, while earnings climbed less than 8% to $491 million.
Two heads aren't always better than one
If you were asked for a price tag on this growing company, you'd probably aim closer to $20 billion than $105 billion. You certainly wouldn't dream of combing both sums to arrive at $125 billion, though that's the market value of Yahoo! (NAS: YHOO) and Facebook (NAS: FB) , combined.
That's what I did here. I combined the past three years of results at Facebook with the last three years of revenue (backing out traffic acquisition costs) and net income from Yahoo! to arrive at the three years and a quarter of combined financials.
To be fair, we also have to include a few billion in cash and Yahoo!'s sizable stakes in two Asian companies. Either way, there's no way investors would value this company at $125 billion.
This isn't a case to make Facebook's valuation seem absurdly high, though I can see where that's one conclusion. The argument I'm trying to make is that Facebook was smart for passing on Yahoo!'s $1 billion buyout offer five years ago. Even if Yahoo! had done the right thing -- leaving Facebook to manage its own growth and let things play out as they actually did -- Facebook is simply perceived as being more valuable on its own.
Timing helps, of course. One can also argue that if Facebook had gone public a year after rebuffing Yahoo! -- and accepting a beneficial investment from Microsoft (NAS: MSFT) that valued the company at $15 billion -- Facebook wouldn't have ascended to become a $105 billion company even as a standalone entity.
We'll see where the market settles now before making that kind of conclusion. For now, all that seems clear is that Facebook dodged a bullet by not pairing up with Yahoo!
A world of opportunity
Facebook has taken the world by storm, but our senior technology analyst has identified another opportunity in social networking that he thinks holds even more promise than Facebook, and he just detailed it in a brand-new research report. If you want to see which stock he thinks could end up leaving Facebook in the dust, grab your free copy today.
At the time this article was published The Motley Fool owns shares of Microsoft and Yahoo!Motley Fool newsletter serviceshave recommended buying shares of Yahoo! and Microsoft and creating a bull call spread position in Microsoft. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.Longtime Fool contributorRick Munarrizcalls them as he sees them. He owns no shares in any of the stocks in this story and is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.