Facebook will usher in the next dot.com bubble
As Facebook increases it value with each passing day, Facebook is heading towards been valued at about 150 billion dollars the 1st day it opens it company to the rest of the world at the stock exchange, come 2012. As at July 2011 Facebook is worth about 91 billion dollars.
A Bloomberg report in late January stated that a poll of global investors reveals that 69% of them think that Facebook is overvalued. Just 10% thought it was "properly valued" (and 4% thought it undervalued), while 17% had "no idea." This report was just after Goldman Sachs Group Inc.’s recent estimate with an investment of $450million in the largest social-networking site which valued Facebook at $50 billion. Since May Facebook has sold common stock well over $2billion. The Facebook valuation is about 55 times its 2010 revenue. Google’s price-to-sales ratio is 9, analysts estimate with a market value of $192 Billion.
There is no doubt Facebook has a lot of value and it’s going to be around for a very long time to come. The problem is that its valuation is probably double it value for now with the potential to explode in the open market.
Luigi La Ferla, co-founder of LTP Trade Ltd described it as “More than a bubble, Facebook is a manifestation of the rational excesses that only the financial markets are capable of when confronted with something without precedents and more importantly unexpected.”
So yes Facebook is officially over-valued. And it will take a very longtime before it will have any profits to show for all the money that is thrown at it right now.
So why are investors/traders still investing
The reason why investors are still investing is because they know they have the cover of the Facebook effect; everyone wants a piece of Facebook. Late Investors know come April 2012 the hype will still be on the rise when Facebook will go public. Buying Facebook shares right now at $35 dollars you are guaranteed to make a 60-80% ROI day 1, after Facebook go’s public.
Then a good amount of these Traders will proceed to dump the shares within the first 48 hours, some will hold for six to twelve months depending on how the market reacts before offloading, leaving the rest of the world to their fate. If you think this will not happen just look at what Goldman’s did with its LinkedIn proprietary positions. It’s just plain old Investment banking, no hard feelings Facebook.
Late stage investors of Facebook plan on using the same strategy as Goldman, not because they don’t believe in the company but because of the way Facebook’s road to its IPO has played out; it’s all ready to late to buy if you want to be a long time investor, at least not up until Facebook stocks finds it real value. For now the opportunity for traders are enormous. And they are feeding on the hype. Things may get really bad after Facebook releases its 1st financial reporting in 2013; if Facebook breaks the $200 billion mark in its IPO. Yes it is possible with all the craziness about the Facebook effect. Then it will have a very hard time justifying any type of earnings for a few years to come. Just like YouTube only this time there is no Big Brother Goggle to have their back.
Facebook is so unique that I do believe they will rebound from such an eventuality even if it takes years. The biggest losers will be investors that hold onto Facebook stocks the very 1st couple of years and up and coming startup Internet companies.
So Facebook is not a burst, it will someday be the Goggles and Microsoft’s of our day as long as it keeps reinventing itself, it has to be more than a place for gossip. But the fallout of the Facebook deal will make investors uneasy about internet companies in general. More than half of investors polled say the firm’s valuation signals the “beginning of a dangerous new bubble” in the market.
Startup Internet companies, will stand to lose from the whole bubble Facebook will create. Investors will have a very hard time committing to new ventures because they are totally burnt or still wanting on their investments in Facebook to materialize. Those fortunate to miss the Facebook party will be very wary about any Internet company for a while to come. To be honest companies with a Facebook effect comes once in a life time. Lessons will be lent but Facebook would have dried up capital for smaller companies for a couple of years.
Some Good News
The current rise with the World Wide Web and information technology has been more productive and profitable compared to the early 20th century Dotcom’s. Over the next 15 years, a wide range of developments will lead to many new IT-enabled devices and services that will in turn help Internet companies reach their target markets. Facebook will be a very big bump on a very bright future ahead.