Apr 1, 2011

VIEWER'S VIEWS: Facebook's Exorbitant Valuations-A new era of tech/dotcom bubble in the making?

How much a website is worth? Face Book’s high valuations are ‘exorbitant’-
          Recently, there seems to be going around a sort of facebook mania on the internet and now well into investment world as well.
             This website founded in year Feb 2004, by 25 yr old Harvard student Mark Zuckerberg, enjoying 500 million users as on July 2010; is making headlines for investors interests and fund raising deals valuing it higher and higher on each deals. But however, this does not seem anyone to be reminding of the dotcom bubble era.
                     Recently, the rounds of investment in Facebook by Goldman Sachs and DigitalSky Technologies assumingly valued the social networking site at around 50 billion dollars.

              In latest update some research firm has estimated that facebook could be worth 234b$ by 2015. It has estimated that the site will earn 11b$ on its 22$b revenues. It adds that this estimation gives the site a present valuation of 85$b. the same firm in its earlier report said the site could be worth 100$b in 2015.
                  More than a decade ago there was a similar sensationalism. It is widely known that shares of Yahoo Inc., surged and then receded; amongst hundreds of technology/dot com start ups, eroding investors capital who came to earn dividends through secondary market.

              The bottom-line is mainly everyone will try to exit at some or later point.
               The IPO is one main route for that and when the IPO hits as is expected this year or 2012, in the USA, it is advisable to avoid it on the below simple argument
  1. Logically most IPOs, especially those in which existing investors offload, come pricier or in other sense do not keep anything on table for IPOs investors. And so would happen with facebook AS WELL!
  2. After all faceboook is just a website! Yes, we understand and believe that the future is online and facebook’s user base is staggering 500 million, and it’s some $2 billion in revenue and $500 million in profit (estimated) are assumed figures. But after all it’s just an ‘internet portal’. We have seen ideas come and go. Before ruled myspace and orkuts; but facebook came with better features (and luck as well) and became the staggering success in social networking as it is now. But tomorrow some other people would come up with better ideas, features and who knows (which greater luck!), and the facebook era shall end for some new internet craze or mania run!
                            The bottom-line is that all the event of investment deals valuing facebook in several billions of dollars is a part and parcel of slowly and gradual exit of investors who came earlier and than after them. The ultimate dump will be the ipo thing. The point is such investments ripes excellent benefits when the retail investors are given opportunity to invest at much earlier stage and not MAKE THEM A ROUTE FIR HIGHLY PROFESSIONAL PRIVATE INVESTORS FOR EXITING (READ DUMPING) AT FAT PROFITS!
Remember, a website is after all a website! It is not selling any product or service.
During the tech-boom era a decade ago there were close to 300 tech IPOs in USA (which amounted to almost half of the total number of IPOs for the year), while in 2010 there were around 20 tech IPOs according to data firms.
The summary is that these ideas are good, but they will face stiff competition. The entry barrier is close to none. Anyone can copy the idea or make modifications and launch a competitive site. Not just someone but many of them!
May be the ‘new era’ of tech bubble/tech investment fancy might last for next couple of or more years with no competition coming/competition held back/suppressed by powerful people in investment world; it can not sustain more than that, the life of such a business at 10 years is too much…This period will see a lot other tech (in fact I should not use word tech, because it is all coding and ideas than hardcore technology) fancied investment deals and IPOs (read ‘secondary market dumping’). Possibly a couple or more years will see the peaking of such phenomenas.  We will update more thoughts in this post in comment secton as and when.
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