back to article Facebook IPO: Boom or bubble?

Is Facebook hugely overvalued or a solid business with some reliable growth ahead of it? A great deal of both. The reason the Facebook flotation is different from yourfunny.co.ck, or anything conceived by a Shoreditch "leisure startup", is that it already has a large and devoted audience. When you can reliably draw a large …

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  1. ItsNotMe
    WTF?

    You're not really serious...are you?

    "...in-app purchases made in virtual currencies. Games operator Zynga, famous for Farmville, contributed 12 per cent of Facebook's revenues last year."

    12% of their "revenue" is VIRTUAL? So I guess Farcebook can turn a "virtual profit" anytime they want then. What a crock!

    1. Bakunin

      Having never played Farmville, I assume Facebook take a cut of any real world payments for in games content (the whole Freemium business model).

    2. 5.antiago

      There's real money behind virtual money

      Virtual currency costs real money to buy, right?

      1. James Micallef Silver badge
        Angel

        all money is virtual

        the only difference between them is in the amount of people who accept that money. Using € or £ to buy Farmville virtual dollars that can only be spent in Farmville is no different to using € or £ to buy Outer Mongolian <whatever> that can only be spent in Outer Mongolia.

        So for FB that's real money rolling in for doping nothing more than allowing Zynga to operate games on their platform.

        1. Anonymous Coward
          Anonymous Coward

          quite right

          In times of relative prosperity the definitio of what constitutes "money" becomes quite loose. In times of austerity it becomes much tighter (eg. gold or goods).

          This has implications for the robustness of the FB business model.

          1. Richard 120

            The money is real

            The money comes from the purchase of virtual items with real money.

            Zynga is a top provider of freemium games. If you're not sure what freemium is then google will help.

            I'm not entirely sure that their valuation is based entirely on genuine currency though.

            Zynga valued at roughly $7bn, from what I can gather FB take a 30% cut (the Apple model) of transactions made on the site, so 30% of what Zynga makes is 12% of what FB makes.

            If you go with the simplest of maths and use some poor logic still favouring facebook two and a half times the valuation of Zynga, roughly a fifth of the $100bn valuation.

            I don't trade, but I have been on facebook and got bored of Zynga games so I find it interesting that they come up with these astronomical numbers.

            I'm guessing the rest of the revenue comes from other freemium games, advertising and probably some "goodwill" which from what I can gather is a proper "virtual money"

            1. Anonymous Coward
              Anonymous Coward

              FWIW: as a FV player, i've looked at the cost in real US$$ compared to FV$$ for what you get... at this time, the rate is 5-6 FV$$ per real US$$... that's if you are buying FV$$ online or via zynga gift cards...

              needless to say, i was and still am rather disappointed at the "exchange rate"... especially when it comes to attempting to acquire some game items... at least one item i was looking at turned out to be ~40US$ and that's much too much for an effin' game, thankyouverymuch :(

    3. Paul RND*1000

      And how do you think you obtain that virtual currency?

      Check your local grocery store's gift cards display. Good luck leaving with $10* of Farmville virtual currency without handing over actual real world currency first.

  2. itzman
    Paris Hilton

    wher is the click through ad model going, though?

    What ought to concern me,(but actually I don't give a XXXX) is whether a model that is predicated on

    - large amounts of net disposable income staying in the hands of the great unwashed (all the evidence is that the only people that will be left with money to spend shortly will be the super rich, and the odd bankster, and a few people who work in IT).

    - the efficacy of cluttering up websites with links to products that at least the people in IT will instantly block with one of the various tools available to those who don't just sit transfixed by Apple or Microsoft's latest 'user experience' ...

    ...is actually a sound business model at all, these days.

    It all seems a bit like opening a store where banksies latest graffiti has been painted, on the basis that lots of people will stop to look at it.

    may be so, but what sort of people are they, and did they come with credit cards or half bricks.

    No, I wont be investing.

    1. Code Monkey

      El Reg's readers might block FB's ads. The majority of users don't.

      Not arguing they're worth this ludicrous valuation but their business model isn't complete arsewater.

    2. btrower

      Yes you will be investing

      You may not buy the shares, but you are headed to facebook and you will invest things of value.

      Invest.

  3. dotdavid
    Meh

    MySpace

    I just can't help but think of MySpace whenever I think of Facebook.

    1. Paul RND*1000
      Facepalm

      MySpace was an ugly disaster of a user interface, cluttered and unusable. Facebook, by contrast, have...oh, wait. Timeline. Never mind...

    2. Dani Eder
      Thumb Down

      MySpace -> Facebook -> ?

      @dotdavid - Good point. It's a website, people can move on to another one. When young new companies go public, it's because they need cash to expand. Facebook already serves 40% of the entire internet with the equipment is has now, so it does not need money to expand. Instead, I think it's owners figure it has peaked, so time to cash out before the fall.

      1. Youngone Silver badge
        Coat

        Can you say scam?

        I'm sure you're right, but the real tipoff is the $450 million Goldman Sachs invested in FB. I understand that values FB at $50 billion, which on the face of it seems like nonsense.

        However, Goldman Sachs would be one of the most efficient vehicles on the planet for seperating fools and money, so who knows how high the price will go?

        Yes, I know GS have had some problems with the FB IPO recently, just don't underestimate their ability to hype whatever they are selling.

        1. Charles Manning

          GS is not an endorsement

          All GS care about is that think they will be able to turn a profit from their investment. ie. they will be able to find someone that will buy for more than they paid.

          It could mean that GS thinks FB has a rock solid business plan and that FB "value" is based on fundamental asset values.

          It could equally mean that GS thinks that there are bigger suckers (or greedier people) out there that will buy from them.

          1. Mark 65

            "It could mean that GS thinks FB has a rock solid business plan and that FB "value" is based on fundamental asset values.

            It could equally mean that GS thinks that there are bigger suckers (or greedier people) out there that will buy from them."

            I believe that all their trades rely on the latter.

  4. Josco

    I don't understand.

    As the sage of Omaha remarked some time ago: "I don't invest in anything I don't understand"

    I don't understand 'in-app purchases made in virtual currencies' contributing real money.

    My real money will stay put.

    1. Big O

      I originally assumed it was one of those things where you buy the virtual currency with real money. The comments are making me question this now.

      1. Anonymous Coward
        Anonymous Coward

        in relation to the zynga games, it is possible to earn their virtual $$$ without spending any real world $$$... you gain X zynga $$$ for each level you advance ;)

    2. Yag
      Trollface

      Real money?

      Do you speak about the few bytes in your bank's computers?

      Or even banknotes under your matress?

      Or even shiny and useless metals?

      There's no such thing as "real" and "fake" money - Zimbabwe dollar may be state-sanctionned money, i'ld take Zinga toy-money instead.

  5. g e

    And how do they measure 'time on site' per user?

    I have an FB window open all the time. In a different tab to the one I'm actually USING.

    If they measure visiting time on site by their timer fetching background updates then those figures are heavily fraudulent because the lights are indeed on but the curtains are resolutely drawn.

    1. Philip Lewis
      WTF?

      zakly

      Yes, that is precisely my thought. And what about my iPhone APP? How is that measured?

      Metrics for which a precise definition is not supplied are worthless. If FB's value is based on these metrics, then I must conclude the company is worthless.

      I have always assumed FB (and Google) were secretly logging my every action unless I logged out. I have some FF add-on protections, and I use trackmenot as well to obfuscate my true nature.

      Philip

  6. Dr Dan Holdsworth Silver badge
    Big Brother

    The law is the rub here.

    At the moment, Facebook has a justified reputation for being an avid collector of any and all personal data it can lay its grubby little hands on, but at the moment it isn't doing very much with all this data. If at some point in the future (like, say, when shareholders can twist one arm behind its back and demand it maximise financial output) it decides to use this data fairly aggressively, then there is a near-certainty that legislators are going to retaliate and very aggressively enforce their citizens' right to privacy whether the citizens want it or not.

    The likeliest candidate for this sort of approach is the EU, which has a known propensity for never letting gibbering idiocy, complete ignorance of what it is doing or any shade of legal competency get in the way of enacting laws on things.

    The second likeliest candidate for jumping all over Facebook is none other than the USA, which is already showing quite a few jackboot tendencies, what with the Patriot Act and the recently promulgated SOPA act. No doubt similar pieces of legislation will be in the pipeline, ostensibly targeted at terrorists but mostly used on local citizens.

    In short, Facebook looks valuable on paper just at the moment. The shares will likely jump a bit post-IPO, then its anyone's guess. Look at what happened to the likes of Bebo and Myspace; social networking sites can and do crash and burn with astonishing speed for the most trivial of reasons. Caution advised here.

    1. 5.antiago
      Thumb Up

      "when shareholders can twist one arm behind its back and demand it maximise financial output"

      This little sentence here perfectly describes why shareholder capitalism is a morally bankrupt system.

      "...the most trivial of reasons"

      For example, being aggressively "monetised" to the extent that the original point of the site is lost, and becomes less fun to visit

      1. Paul RND*1000
        Thumb Up

        @5.antiago

        You end up running your company for the benefit of the shareholders.

        Any customer satisfaction achieved is merely an accidental side effect of this behavior.

        1. JimC

          > customer satisfaction a side effect

          Not so. If a company doesn't achieve a balance between the needs and desires of shareholders, customers and staff it will fail, because it needs all three to be content to stay in business.

          1. TheOtherHobbbes

            Historically

            this has never been an issue.

            See e.g. Microsoft which did quite nicely while ignoring user rage.

            On Planet Capitalism you get revenue by marketing the crap out of mediocrity and/or by sending the lawyers in, not by being genuinely awesome and superb to the point where you're fluffing your customers until they squee.

            FaceBorg has a lot of potential. It has so much potential it has no idea what to do with it.

            Customer satisfaction likely won't play a huge role in future plans - no more than it does today, anyway.

    2. the-it-slayer
      Pint

      Looks like Zuckerbong needs advice...

      Are going to call him and advice of this very quality information?

      I'd like to put my money on Facebook dying within the next 2 years. Some scandel or new social-media fang-dang-thing will take over to make millions cancel their accounts everyday. Twitter will then be over the moon as it takes the social update lime-light.

      Beer?

    3. Drew V.

      "If it decides to use this data fairly aggressively, then there is a near-certainty that legislators are going to retaliate and very aggressively enforce their citizens' right to privacy whether the citizens want it or not."

      I like how you're implying that when FB starts to use data very aggressively, people themselves are just going let that happen and bend over for FB. You think people are just sheep, don't you?

      Caution advised: low opinion of humanity.

    4. Anonymous Coward
      Anonymous Coward

      exactly! one of the things that i look at is how many try to do something with advertisements... well, lemme tell ya, world, i hate ads on TV and in all kinds of media... as such i specifically block ALL ads from arriving (or even being requested in many cases) on my systems...

      IF i want something, THEN i'll go looking for it... other than that, if you try to shove your warez in my face, you can forget about seeing me any more 'cause i DEFINITELY will not be darkening your doorstep...

      on the other hand, if i have something you are interested in, ask me about it... if you think i might be able to acquire something you are interested in, ask me about it... in other words, i will NOT be cold calling you nor will i be rushing over you trying to sell you what i think you want... i'm not a "used car salesman" and i never will be... in my world, eskioms do not buy ice from any sales persons... they go get it themselves ;)

  7. Rovindi
    Thumb Up

    mmm...

    Damn fine article. Well written and well balanced. Good Journalism.

    That`s why I like El Reg.

    Keep it coming...

  8. Donald Miller

    Minutes per user

    So 20 minutes per user per day (not even trying to calculate users such as g e) is their business plan? I probably spend more time than that reading The Register®, but I also have it open in a tab ~24/7 without looking at it much more than that 20 mpd. My budget is about $5000 per month, and I've never been to Fecesbook. I wonder what ebay's mpu is?

  9. fireman sam

    Here's my prediction... FB will launch on IPO and quickly gather close to the $100bn valuation they're looking for.

    Soon after the initial furore settles, you'll see a large drop in share price, probably about 35%. Still massive for a company who doesn't sell anything and who's only source of revenue disappears with Ad Block Plus, unless you're the sort that likes spending real money for in-game items.

    Compare to a valuation for AMD, one of the largest chip manufacturers in the world, at about $6bn and those numbers look a little crazy (or ARM at $13bn which is probably overvalued in itself).

  10. John A Blackley

    Overheard

    on the radio this morning, one financial analyst reckoning that, in order to justify its IPO price, FB will need to accumulate one quarter of the entire world's advertising revenue (in all media) over the next five years.

    Shorting FB shares might make some money.

    1. A Marsh

      Only you can't short the shares, because they're not free-floating - i.e. you can only buy if you know the right people, so there's none to borrow.

      Great article here on it too http://ftalphaville.ft.com/blog/2012/02/01/864331/become-facebooks-friend/

      Which includes a number of risks:

      "If we fail to retain existing users or add new users, or if our users decrease their level of engagement with Facebook, our revenue, financial results, and business may be significantly harmed."

      "Our financial performance has been and will continue to be significantly determined by our success in adding, retaining, and engaging active users. We anticipate that our active user growth rate will decline over time..."

    2. Anonymous Coward
      Anonymous Coward

      while this shorting futures might be possible, i personally view it as highly unethical and one of the basic reasons why the world's economy is in the cr4pper that it is in... remember, it is these speculators that caused the euro mess that is floundering now... especially when one looks at the fact that countries like greece were not able to get "loans" and then when they joined the euroscape they were... until someone decided to look at them as an independent country again instead of as a euroscape member...

  11. EddieD

    Erm...

    does it allow for the dweebs like me who open facebook tab when they log in at work (yeah, okay...I'm weak), and leave it like that all day?

    I maybe interact with it for 5 mins, but it would appear that I'm logged in for 540 mins..

    1. Local Group
      Meh

      @ Erm

      While I am not a great user of FB, I have always felt that it's not the number of minutes you spend there, it's the number of different pages you navigate to while there that FB advertisers look at.

      1. Mark 65

        But surely they are attributing a time allowed for reading that page and I think that is the problem - they did not disclose any methodology.

        1. Local Group

          @ Mark 65

          Promoting your product or service on the internet is still the 'mystery meat' of advertising.

          The CPM to advertise in a newspaper, magazine and television or billboards on the highway, subway car or soccer match has been established and is a helpful tool for the media buyer.

          How many readers click onto a page with your ad is the best way to determine how much to pay for that advertisement.

          Does anyone know if there's a difference in receptivity to your ads between a reader turning the pages of a newspaper or clicking through pages on the web?

          Perhaps it's not a question that the methodology is not disclosed. It simply may not known.

  12. Andrew Moore

    The writing is on the wall...

    My 10 year old daughter described someone yesterday as being 'so lame, she has a Facebook page'.

    Zuck better sell those shares of his sooner rather than later...

    1. 5.antiago
      Thumb Up

      Nice!

      Haha! Really? That's funny

      It's not that I'm *massively* anti-FB, just that it seems so obvious that websites like this will simply go out of fashion. Being cool builds the crowds, the crowds make it mainstream, mainstream makes it uncool.

      Just so long as we don't have to bail out any investment banks that buy FB shares

      1. Just Thinking

        "Being cool builds the crowds, the crowds make it mainstream, mainstream makes it uncool."

        But by the time you are mainstream, you don't need to be cool anymore.

        I used to like U2 back in the early days when they were briefly cool. Went off them when they got more popular and their music went off the boil a bit (as well as turning into a bunch of ...)

        I doubt that they miss me.

        1. Andrew Moore

          Well, they did go seriously downhill right about Zooropa

        2. Ian 16
          Alert

          uncool

          I'm sure myspace would rather not be 'uncool'

          =P

    2. Uncle Slacky Silver badge
      Thumb Up

      Same here

      My younger daughter (13) hasn't bothered to join - she texts her immediate friends anyway, and she corresponds with the more remote ones by email. Elder daughter is on FB but has been keener on G+ on late. Her presence on both is mainly in order to plug her own self-built website & merchandise, however.

    3. EddieD

      Similar here - my 13 and 18 year old nieces have practically abandonded Facebook in favour of BBM - which might explain the Q4 surge in blackberry shipments in the UK

  13. John I'm only dancing

    Alchemist

    Looks like they might actually achieve turning manure into gold...well lining Suckerbug's pockets anyway.

  14. Graham Marsden
    WTF?

    To paraphrase the Hitch Hiker's Guide...

    "If it comes to a choice between spending ten billion dollars finding that out that the entire internet is being run by a bunch of maniacs, and on the other hand just taking the money and running, then I for one could do with the exercise!"

  15. Anonymous Coward
    Anonymous Coward

    yourfunny.co.uk

    my funny?

    1. Richard 120
      Joke

      Go back and read again

      sed 's/uk/ck/'

  16. Anonymous Coward
    Anonymous Coward

    Focus... on what?

    It's no surprise that facebook is really proud of being a name fascist, forcing everyone into the mold of their "acceptable name" algorithm. That is not quite the same as having people's real names. And it doesn't follow at all that this makes their user database more useful to advertisers. This is more after-the-fact justification of initial knee-jerkery than reason.

    Why? Because with several hundred million accounts (which may or may not translate to roughly as much real people) you actually can do that profiling thing without needing so much as a name. In fact, you have a big enough base to pick subsets and do impromptu controlled advertising experiments. Even if they're never going to be usable for scientific papers, they may well be usable for the advertisers. And that is what they're after.

    Another reason for them to insist on your real name is to try and enforce exactly one account per user. Apart from being socially undesirable for the users, seeing that the real work is in maintaining the account, it should be automatically self-limiting and wouldn't skew the above experimenting overmuch, if done carefully enough. Which person is behind the account isn't as relevant as contextuality of adverts is. See the problem here?

    Thus, in that field too teh zuck is not willingly part of improving the world of social networking. More to the point, he actually hasn't a clue how to a) monetise the data he's sitting on, nevermind b) do it in a way that doesn't cause him no ends of judicial (and perhaps even legislative) grief, as pointed out above.

  17. Colin Millar

    Bubble bubble toil and trouble

    (With apologies to WS)

    Interesting quote from Richard Nunn at Charles Stanley Securities

    "Facebook is worth the expected $80-$100bn valuation because we believe it is and will be the dominant social media platform globally"

    Translation - "A grossly overvalued stock = lots of trades = lots of commissions - YAY!"

    Never take investment advice from a man who profits when you lose money.

  18. Anonymous Coward
    Anonymous Coward

    I just deleted my profile

    I feel so much better now....

    1. Roger Greenwood
      Pint

      You can check out any time you like . .

      . . . . but you can never leave.

      1. Local Group
        Paris Hilton

        Such a lovely place

        Such a lovely face

        1. Roger Greenwood
          Thumb Up

          Everybody's so different . . .

          . . I haven't changed.

  19. drdom

    I smell another bubble

    Facebook's current advertising "system" is a complete joke which must have been programmed in an afternoon after a lunch of a few JaegerM+RB's and mutual high-fives.

    If I write "I think Liam Gallagher is a complete twat" in my status I am bombarded with ads featuring Liam Gallagher. Yes, I am an avid football fan, but only of <ONE> team and I'd rather stick pins in my eyes than buying anything with an Arsechesterpool City Hotspurs badge on it.

    If you are in advertising and wasting your money on this crap then you are an idiot. If this is Facebook's current understanding of the way advertising works then what are they going to dream up in the future that's any use?

    At least with Google there is a bit of like, er, y'know "context" and stuff.

    1. Anonymous Coward
      Anonymous Coward

      Adverts?

      What the fuck are adverts? I don't see any adverts.

      1. Philip Lewis

        They have ads?

        OK. I found out a while back. But I have never actually seen one in any of my accounts.

      2. Anonymous Coward
        Anonymous Coward

        Re: Adverts?

        Well, that's always been my point too - I've never really seen any other than a few on the web version at the side, though they are coming to a newsfeed near you apparently.

        But they are kinda there subtly - if you like stuff, that stuff advertises itself to you, like Top Gear does to me. Though, don't see how that makes them any money, then again, I;ve never really understood how they make all that much money, certainly to justify such an obsurb valuation.

  20. Matthew Gaylard

    The people directory

    I don't think that the collapse of MySpace is indication of the likelihood of the same thing happening to Facebook. The collapse of MySpace was a result of the fact that both companies provide a useful service - an online "people directory" - that will inevitably be dominated by the provider that builds an unassailable momentum in terms of user numbers.

    I suspect that most Facebook users are like me. They occasionally use it to look up or contact someone whose contact details they don't have. That is a very useful service.

  21. Liam Thom
    FAIL

    Friends Reunited

    Facebook is the very definition of a financial bubble. It is overpriced, has tiny margins and its value is based on the expectation of continuing rapid future growth. I can see the share offering being a resounding success for six months and then a lot of investors realising they have bought vouchers for magic beans.

    The internet is littered with failed social networks and even if Facebook is not one of them it is almost inconceivable that it will ever be producing enough profit to justify a £100bn capitalisation.

  22. amanfromMars 1 Silver badge

    Softly, softly .......... catchee millions of dumb animals?

    amanfromMars, …… said in reply to the tale on http://www.wired.com/epicenter/2012/02/facebook-ipo-2/

    Isn't Facebook just a metadatamining operation into which one pours personal secrets and latent desires for others to sell on and server back to you, with a price tag attached to your dreams? Or are they supplied free at no personal future cost, and is that what makes it a valuable float/stock ...... for a new kind of sociably responsible capitalism?

    It is also a great spying program too, of course, delivering all sorts of high leveraging positions with the private information it makes available.

  23. Gannon (J.) Dick
    Stop

    Ask yourself ...

    ... if Bain Capital could make Billions on the FB ash heap. Um, no. It's like an investment in 1950's Phone Books, lousy fuel, inedible and hooking up may not be at all what you imagined.

  24. Jolyon Smith
    Coat

    An IPO can be the beginning of the end...

    When Google went public, as the article touches on, they still had a long way to go and quite an obvious path forward. The IPO gave them the cash to do that.

    With FaceBook, where do they go from here ? Yes, they are collecting lots of information, but what can they do with that apart from sell it ? The comparison with a TV channel is very apt - they are a platform that provides content to an audience and sells access to that audience to their content providers.

    In many ways, FaceBook are the new AOL. And look what happened to them after they went public.

    Zucker said he has no interest in running a public company, yet here he is going public. Why ?

    One market analyst quite recently observed that for a business considering an IPO at some point in the future, there comes a point where the IPO has to happen NOW in order to make the most money out of the IPO. Once they realise that things are at best as good as they are going to get and at worst downhill from here-on-out, you HAVE to IPO at that point because if you IPO later on you won't make as much money.

    I'm pretty damned sure this is what we're seeing with FaceBook.

    Mines the one with the NEXT big thing in the pocket.

    1. Local Group

      @ Jolyon Smith

      I agree that FB are a lot like AOL. But members of AOL paid a fee every month and when high speed connections and cheaper prices came along, their members left in droves.

      FB doesn't face that situation. AOL lived on the revenues from their members and it was obvious to everyone when they were gone. FB only have to keep the number of active members to appear to be expanding and not collapsing.

      One reason Zuckerman is taking FB public so that he can sell some of his 500,000,000 shares in the stock market and not have to find buyers on a secondary exchange. Maybe he sees the end of the joy ride?

      In a sense the FB IPO is like a canary in the coal mine. If it doesn't do well, it doesn't bode well for the economy in 2012 and for Obama in November.

  25. Marketing Hack Silver badge
    Meh

    I'm a little skeptical

    I know how I use facebook. Basically, I might be online for hours at a time, but I am not checking out products/reviews/services that are advertised. Basically I play one FB game and I come by every 20-30 minutes to do one more thing in the game, and then I come back again when it is time to do the next thing. My various friends seem to do the same a lot.

    Now, I think that this model works well if you are advertising social services like dating services or such through FB, but I am not sure about "hard goods" or financial/consumer services.

    So I am not going to get carried away searching out Facebook shares for my retirement account or something like that.

  26. darkmage0707077
    Joke

    Disaster Averted

    "The other is from - and please ensure that you're sitting down before reading this - in-app purchases made in virtual currencies."

    I was going to joke about The Reg employing witches over this and wanting to return to The Daily Mail for its journalistic integrity over this, but when I did the math, I realized a few lols wasn't enough to justify the large risk of that much bollocks in one post collapsing and creating a BOHSON* of such magnitude and horror that it would destroy the world. So I won't. You're welcome.

    *Black Ominous Hole Stuffed Overflowing with Nonsense

  27. Jolyon Smith
    Coat

    LocalGroup... how they make their money isn't the point...

    FaceBook is popular because... it's popular. Once a significant body of it's community move on to The Next Big Thing then the whole thing collapses in on itself.

    And this is already starting to happen, most crucially for FB among it's prime demographic - teens and young adults. So yes, while they can still massage the numbers to give the impression of growth, now would be a good time to go to the market, before the market realises that FB's time in the spotlight is starting to - if not pass - at least peak.

    FB's infrastructure costs must be phenomenal... when user numbers start to fall (and they will) the ad revenue will dry up at a much faster rate. The fees from virtual currencies will similarly dry up once the providers of those games establish enough of a presence to create their own economic communities separate from the FB platform. You may have read that Zynga have already pulled the plug on a number of "FaceBook" games, and are now starting to create their own eco-system separate to the FB one that gave them such an important "leg-up" to get started.

    There will come a point when FB will be forced to consider subscription fees for it's users just to cover it's costs, and once that happens a new FaceBook will spring up to start the cycle all over again.

    Game Over

    (and by that time Google+ will be very well placed to pick up the pieces)

    The point being, that those standing to make most from an IPO will know all of this already and perhaps even have had a red letter date circled in their calendar for when this all has to happen for some time already.

    It's time for them to cash out.

    The only question for you, as a potential investor, is do you want to provide some of the glittery lining for Zuckerberg's Golden Parachute ?

    1. Local Group
      Childcatcher

      Your observations are astute

      "There will come a point when FB will be forced to consider subscription fees for it's users..."

      Or they will have sold themselves to Time Warner by then.

      Zuckerberg has a whiff of a 21st century Augustus Melmotte about him, no? :-)

  28. Killraven

    Black Adder & Pedantry afoot.

    Baldrick conceived the cunning plans, Black Adder just came up with plans.

  29. Rosco

    Revenues and profits

    Some interesting things about Facebook that are missing from the article and confound the vast majority of snide comments here:

    1) Facebook has nearly double the profits of Amazon in 2011

    2) Facebook revenue and profit are both about 1/10th that of Google

    3) Facebook has more profit than Google had revenue when they went public.

    Raw data in the S-1 filing. Comparison with Amazon and Google courtesy of MG Siegler (http://parislemon.com/post/16888592105/fathoming-facebook)

    Now I can't begin to understand where this money comes from but unless they're lying on their S-1, comes it does. You can speculate all you like about user engagement numbers but cash is cash.

  30. Anonymous Coward
    Anonymous Coward

    Pump and Dump Scam...

    ...of a business with a flawed profit model and at the end of its shelf life.

  31. Anonymous Coward
    Anonymous Coward

    IPv6 will kill Facebook

    Once we all have static IPs all it will take is for one decent social networking application to slaughter Facebook. Their IPO suggests this will take 80 years to happen; I suspect rather fewer.

  32. Anonymous Coward
    Anonymous Coward

    From my experience FB is in decline already

    Far too risky an investment in my eyes, at least long term. Facebook is a fad based on soley on a large userbase that actually use it. Userbases are notriously fickle. Once a large userbase doesn't use it because their newsfeed is diluted heavily with ads and spam from all the shite you once 'liked' but can never seem to work out how to 'unlike', or worse, the spam from all your sad friends who play the likes of farmville, FB is a dead duck.

    I have already noticed an increasing number of friends dropping off from FB - not as in closed their account, but simply not using it anywhere near as much as they did a year or two ago.

    And that is true of me too, since my friends don't use it so much these days I am losing interest because my wall is full of friends' usage on Shazam and shite like that or, for example, an update from TopGear that I'm not really intrested in but get because I 'like' Top Gear. Soon I'm told that my newsfeed will also include 'targetted' Ads (though effectively it does already) at which point I doubt I'll be using it much at all.

    Facebook should take note of this, as should any potential investor.

  33. Anonymous Coward
    Anonymous Coward

    Bebo???

    One thing the "internet" age has taught me (been using it from the Gopher days :) ) is that it is unpredictable - all the next generation has to do is choose something/someone else and Facebook is in trouble (and guess what, will probably happen.... - remember AltaVista, the no 1 search engine).

  34. Local Group

    All Zuckerberg has to do

    is keep FB alive long enough to sell enough of his 700,000,000 shares (the 588,000,000 Class B shares and the 120,000,000 fully vested options he owns.) If he keeps FB afloat for a year or two after going public, he should get a couple of billion at the minimum out of his shares into legal tender.

    He's got FB set up so that he still retains control of it after selling a lot of his stock. His Class B shares have ten times the voting power of the Class A shares which are ones that will be exchange traded. When he sells his Class B shares, he can convert and sell them as Class A shares.

    A little paranoid about losing control of FB, Zuck?

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