Facebook goes from $105 billion to $93 billion, within a couple of days of its IPO!
Who is to say what the right valuation is? Who has seen a hundred billion? With revenues of 1 billion, what justifies a 100x valuation in a company that provides its primary services for free, and depends on “eyeballs” (reminds me of the dotcom days) and “stickiness” to generate revenues from advertisers?
Where is the asset that is non-replicable? Where are the entry barriers? If these are solely due to the fact that people won’t move to other social networks, what benefit do you get by people sticking to your network? You allow them to post unlimited amounts of data and pictures, free, and run datacenters with a capacity of gadzillions of bytes to allow people to socialize. And then what? Provide space for advertisers to display their hoardings, provide access to “big data” to firms that will do “analytics” – how much revenue will this result in?
I can understand religious faith – visit the temple and the Lord will shower blessings on you! But what kind of faith is this, where people pour billions into an IPO where the revenue model is just that, a model – something that arrives at a Net Present Value of highly imaginary future cash flows? Pour your offerings into Mark Zuckerberg’s Hundi – if you don’t you are likely to suffer from a severe feeling of rejection, since everyone else is doing it, and there is comfort in belonging to the crowd. The Dutch Tulip case and several other examples of unsustainable price increases come to mind.
Ok, for that matter, why did people invest in Anil Ambani’s power projects, when all he had was a plan, to enrich himself? Why are telecom companies selling stakes to each other at high valuations (maybe that is not true any longer)? Why do people still invest in airline companies, which have no chance of making money, or in airline companies run by aging playboys, where the chances are even less?
Why does common sense desert us, and why do we always follow the herd?
(encl: nice article on Facebook, see below)