SAPessi

A question I’ve been obsessed with during the last 3 weeks. I followed the negotiations between Facebook, Microsoft and Google as closely as I could and I must admit I’m flabbergasted by the 15 billion $ valuation.

Last time I checked, and I make sure to check very often, Facebook was a 3 years old company about to reach break even, this year estimate revenue amounts to 150 million $. Enough to sustain its 700 employees and the rest of the infrastructure.

As we all know Microsoft has recently purchased a 1.6% stake in the company for 240 million $. Now if my math is right, and I like to think it is, Facebook is actually “trading” roughly at 100 time its revenue. I believe this is something for the Guinness book of records, at least since the last bubble burst. Rumors are now floating around that two NY hedge funds are both buying a similar stake in Facebook.

As crazy as it sounds Microsoft’s move actually makes sense. The deal will, in fact, be a two way source of dough for M$ – First by serving all the ads through Facebook worldwide and also, obviously, because of the potential dividends or eventual IPO.
It’s the hedge funds involvement I’m puzzled about. If the rumors proved to be true this would be an incredibly big gamble for them. I’m sure both Facebook and funds are banking on the constant growth of internet advertisement market. However, this is no reason to jump in such a large and risky investment. Especially considering the recent troubles the world incurred in by mis-judging the cost or risk.

Facebook is a great company/site and so far it has not missed a shot. Nevertheless I still have some doubts which I can’t stop bullet-pointing out to everybody I talk to:

1. Social networks are very… “volatile”, they come and go with the tide.
2. Technologies come and go too. Today is advertisement in banner-form, video is coming and who knows what’s next and if Facebook will keep the pace.
3. Facebook is trying to do everything, social network, photo, video and whatever is next. In my experience that’s the best way to do neither one well. (I tried to use Facebook for my photos, it sucks)

My conclusion – YES, Facebook is a bubble – The rest of the market, NO.
I’ve read all over the web blogs of people describing of the renewed spur of investments in web companies as bubble. I like to think that we’ve learned something from the previous one and that markets are smart enough to adjust themselves. Furthermore big starting capitals are no longer required to run a successful web startup which makes the forming of a bubble considerably harder. I particularly liked an old post by Fred Wilson on the subject.

Let me close with a quote from the WSJ blogs

To put a valuation like that into perspective, if you slapped it on General Electric, the industrial conglomerate would have a market cap of $11 trillion, just $1 trillion short of the total U.S. GDP.

P.S. If you know where I can collect some more figures about Facebook growth over the last 2 years please let me know. I’m not talking about page-views, as I said due to the volatile nature of social networks those figures are hardly relevant, they may drop in the blink of an eye – so to speak – what I really want to see are hard figures of earnings and revenue.

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