Why Facebook is not worth $ 100 billion (or what is business)
swturl.com
swturl.com
Advertising is about getting the right message to the right person. Search engine marketing works because the person has already expressed their interests (and therefore segmented themselves very precisely) by typing in a search query. Retargeted ads are also effective because you are targeting the valuable segment of "people who have visiting your site".
Facebook, on the other hand, allows to define a random person really precisely. Not only on their demographics but also which web pages they liked, what their friends like etc etc.
This could extend to any ads. Banners obviously, but also TV ads shown on streaming programs. Imagine the impact if you can avoid paying for the 99% who are fundamentally not interested in your message, and different ads are shown to different, very precisely defined, segments.
I personally believe we'll see a flowering of special interest social networks - like github & HN is for us, but across the spectrum of human interests. Such targetted-interest destinations provide a social service FB or G+ is not going to provide. And they don't need to. These other social networks are probably already out there, growing their sub-culture communities right now. Look at Pinterest for example; they appeal to a specific subculture and have decent traction at the moment. FB is like pop radio - too generically bland.
Specific purpose social networks will eventually dominate, I believe, because only in such an environment is sophisticated dialogues about the subculture subject matter at hand possible. At the more generic social networks ones' deeper, technical exchanges get interrupted by "friends" interjecting meme humor or other info-noise to such exchanges. Who needs that when trying to be serious?
Facebook's valuation seems to be based on exuberance (rational or otherwise) but also on uncertainty. No one really knows how social networking is going to be used going forward. So if you've got a truckload of money you don't really need and like the idea of having two truckloads of money, it might actually seem risky not to invest in Facebook...
I'd take the article over it, any day.
As an investor, they're not worth buying at a hundred billion. There's little to no value upside over the next five years (value, not price; value being what you get, price being what you pay), short of a stock market bubble spiking everything.
It's not surprising FB would get a $100b valuation though. Investors are desperate for growth.
Compression is a word FB investors should get used to. Facebook will spend years growing into that valuation, much like other tech stocks in a similar outsized valuation situation.
Google for example has returned a weak 6% per year for the last five years. Not much greater than the dividend that Verizon and AT&T pay. eBay has spent a decade growing into their crazy dotcom days valuation, and now sport a very modest 15x pe ratio.
At $8 billion in sales, FB can generate $3 billion in net income. Their model scales extremely well in terms of margins and expenses per extra dollar of sales/profit.
At $3 billion in net income, they'd have a 33 pe ratio. They can absolutely hold a valuation around those levels three years out. This is assuming their sales growth continues to slow. However, point being, there's no value upside left in the stock.