Housing Conference

I just got an e-mail on an interesting conference coming up in December. I am hoping that it will be webcast. It is the 2007 National Housing Forum to be held at the National Press Club on December 3. Here is the agenda.

OTS National Housing Forum

Facebook equals Broadcast.com equals Geocities?

It was reported a few days ago that Microsoft is considering buying a minority stake in Facebook, the social networking site. The investment implies a value for Facebook of $10 billion. So what can $10 billion buy you these days?

Facebook, according to the Wall Street Journal, will have revenues of $150 million, and profit of $30 million in 2007. That gives us a multiple of 67 times sales and 333 times earnings. This assumes that the $30 million are actual “earnings” and not “adjusted” or “non-cash” earnings.

Growth you say. “Don’t forget about growth,” you scream at the top of your lungs. “I worship the god of growth.” Let’s do a discounted cash flow model and see what those earnings have to grow at, that when discounted to the present, justifies a valuation of $10 billion.

If we use the following assumptions

Growth Rates

Years 1-5 40%
Years 6-10 25%
Years 11-15 15%

Terminal Growth Rate of 2%
Discount rate of 7%

We get a present value of cash flows of $10.1 billion. Zuckerberg….take the money and run.

Lennar Stock Last Cycle

One problem with Wall Street is a lack of institutional memory. It seems that no one even remembers the last big downturn in housing that occurred in the late 1980's and early 1990's. I am posting a series of charts of different Homebuilders from that era. The first up is Lennar.

Two things are clear from this chart. First, this is not the first time that Homebuilders have gone down 75%, and second if you time this right on the upside, these stocks will be the buy of a lifetime.

It's hard to see in the chart but the stock looks like it bottomed out in October 1990 at around $0.55. This is down from the peak of about $2.05 in early 1987. Also, you will notice in the chart that there was a false rally after the crash of 1987. If you bought Lennar after the crash in October 1987 at $0.78 you saw your investment almost double in two years, before the stock fell to its true trough in October 1990. It would be interesting to see when the book value of Lennar stabilized in this downturn. Unfortunately, the SEC web site only goes back on line to 1994.