I’m not exactly a savvy investor, and I usually don’t publicly comment on this sort of thing, but Facebook’s IPO is just begging for it. I mean, really, how did anyone think this was a good deal? They valued the company at something like $104 billion!
Seriously?!
If Yahoo Finance can be trusted, Facebook’s yearly revenue is only $4 billion with a profit margin of 24%. Their growth rate is claimed at 44.7% per year. Assuming this rate can be sustained (and if my math is right), that means it’ll take just over a decade for Facebook to actually have made as much money as it’s currently valued at.
That it will maintain that growth rate is an absolutely enormous assumption.
First of all, social networking sites historically have a fairly short half-life. Witness Sixdegrees, Friendster, Myspace, and more. Consumer sentiment on Facebook is already in decline; it’s only a matter of time before someone else comes along and eats their lunch. I’m impressed they’ve lasted this long, to be honest.
Second, I find it likely that their user count is grossly inflated. Their claim (and this is no joke) is that they have more than 800,000,000 users, half of which use the site on a daily basis. With an estimated world population of approximately seven billion, that’s almost 12% of the world’s entire population!
I call bullshit.
If they’re anything like Myspace was (hint: I worked at Myspace once upon a time, so I know whereof I speak), they’re counting every user account ever created on Facebook. I’d bet good money that a very large percentage of those accounts are duplicates, or haven’t been touched in more than a year. They claim that they have a user population damn near three times the population of the United States of America?!
Nope. Not buying it.
The biggest problem, however, is the half-life thing. The popularity of social networks is inherently based on what people perceive as “cool.” There’s nothing keeping the users from jumping ship, no matter how much Facebook wishes it were otherwise.
Facebook’s cool factor has been waning for a while in my opinion; the only reason it hasn’t gone the way of its predecessors is because nobody has yet stepped in to offer a more compelling – cooler – destination.
So yeah. That valuation never should have happened. The company is only worth $104B in someone’s fantasy world. Real-world value is a very different story when you take into account the long-term realities of the social media market.
Perhaps I’ll look back in a decade and laugh at my own stupidity, but somehow, I doubt it.
</rant>
S.
