There were two great victories for the Internet this week. One real and one imagined.
For starters we learned that taking a photo of a placenta won’t get you kicked out of nursing school
This is important because the right to be disgusting is part of the great freedom the Internet offers. Even better, Goldman Sachs investment in Facebook will lead to an IPO and inevitably the end of the hype involving the company that’s already being described as a ponzi scheme.
Again, this is good for the Internet. Let me, quickly, explain why:
Despite the claims of teenagers and marketers, Facebook is not the Internet. It’s just a really neat website. However, the misguided notion that a closed network can leverage its platform for ANY extended period of time is laughable.
The Internet is dangerously fickle and unless Facebook develops the ability to deliver sandwiches over wireless protocol or develop an orgasmatron application people will eventually move on; anybody remember AOL? Ironically, a $50 BILLION valuation means Facebook is worth more than Time Warner now too.
Don’t get me wrong. Facebook is no slouch.
"Facebook’s profit margins are right in line with Google’s. But Google currently trades at 25 times earnings. At $50 billion, Facebook is trading at a multiple of about 100 times earnings."
IF their books aren’t too cooked, a recent article on the Goldman Sachs investment notes: The social networking firm raked in $200 million in net income on $777 million in revenue in 2009.
The proclaimed profit margin of 25.7% is impressive but only ranks 25th among net profit margins in the S&P 500.
Here’s the money line: "Facebook’s profit margins are right in line with Google’s. But Google currently trades at 25 times earnings. At $50 billion, Facebook is trading at a multiple of about 100 times earnings."
In a word, the company is OVERVALUED. But it gets worse, the company isn’t like Google or Time Warner or any other big media operation that has revenue far more solid than mere advertising and customer marekting information. While I’m sure Facebook has an impressive bit of infrastructure it’s nothing that can’t be duplicated. Heck, even Vietnam has developed a Facebook clone to spy on its people.
Again, it’s all too similar to AOL, with high profile investors taking the bait instead of lame CEOS who know better by now. In the meantime, the fad is even more fun than the hulahoop, and for the users not much more expensive if the value of time isn’t factored in . . .
Even better, when this bubble bursts the next one is just around the digital corner.