Of Vampire Squids Bearing Gifts.
Mark Zuckerberg seems to want Facebook's public debut to be as dull as his bluey-grey t-shirts. The dominant social network is widely expected to file regulatory documents with the US Securities and Exchange Commission later today. But the company's CEO is reportedly hoping to play down the whole affair. Kara Swisher over at …
I'm wondering what you think this has to do with Facebook's valuation. When has the market ever shown an inclination to prefer a superior product?
More importantly, Facebook has the users now, and for most of them the most compelling reason for choosing a social-networking site is "where my friends are". Even if G+ were a hugely innovative improvement over Facebook with lots of distinguishing functionality and much greater usability (and it's not), the majority of Facebook users are unlikely to switch individually because they're unlikely to switch as a group.
I don't care for Facebook (or Google+), and I don't really care what happens with their IPO or subsequent fortunes. But I don't expect Google will get rich from G+ at Facebook's expense in the foreseeable future.
On the figures available 100bn suggests a PE ratio of 160+ - that's a lot of money chasing an assumption of a 20 fold increase in earnings in a very short term - that's a lot of expansion for a firm that is fairly narrow in focus and hedged about by strong competitors in the big money areas of it's comfort zone.
5-10bn range looks more realistic for Facebook - although if there is confidence in future earnings maybe 20bn.
I think Zuck is quite right to be concerned about a massive overvaluation - the last thing a company like facebook needs is constant bad news on its share price.
A lot of the users might grow concerned about the pressure to increase profits/monetization when it goes public. I know I am.
I think it might lead to a general reduction of users if it is seen as needing to live up to a huge valuation. They will start pushing crap or selling more and more personal info.
I still don't know how they afford the running costs let alone pull in a profit. Is it purely through ads and games? I have never spent a penny on it and I don't plan to.
Same line of business. Same market dominance at its peak. Same absurd valuation.
But it turns out that those 800 million bitches *can* just up sticks and move to a different social networking site.
I hear (this morning) that Facebook manages about a billion profit on a turnover of 3-4 times that. Fair enough, but no-one has yet found any way to make money on the web except selling advertising (which Facebook already does to the best of its ability) or Real Stuff (like Amazon, but not at all like Facebook). It would be a huge leap of faith, then, to assume that FB will ever make substantially more (inflation-adjusted) than it makes now. Consequently, unless they can be certain of sustaining that market share for several *decades*, they can't possibly be worth 100bn. The MySpace experience proves that they can't be certain. Therefore, any valuation of FB over a few billion is just Bubble 2.0.
The user bases for My Space and Facebook appear to have significant demographic differences. My Space's was younger and more comfortable (though not necessarily more capable) with technology. Facebook's demo seems to represent a more even distribution by age and Internet use. Consequently, there's reason to believe that a significant portion of Facebook users 1) have more invested in their Facebook social network because they know more people who they see less often in real life (as a consequence of having more life experience), and 2) would be less confident of their ability to switch to a different social network site and continue to enjoy (such as it is) an experience of the same quality (such as it is).
So I don't think the My Space decline is necessarily evidence that the same thing could happen with Facebook under the same circumstances. Also, it's arguable those circumstances don't exist anymore anyway; the transition to Facebook was driven in part by a lot of people who had Internet access but didn't use social networking climbing on board, and that potential market may be largely tapped out (except for children growing up into it).
Also, there's a third option between "selling advertising" and "selling Real Stuff": selling fake (virtual) stuff. Facebook's been doing that for years. Initially it was nonsense like "gifts", which probably didn't represent a big revenue stream, since the number of people willing to waste disposable income on an icon is likely limited. But then Facebook opened their platform to apps, and "Facebook credits" became a form of "fake stuff" that Facebook sells for Real Money.