Friday, May 18, 2012

Is Facebook' Really Worth That Much Money?

By Reginald Kaigler (DEMCAD)

There's been a lot of talk about Facebook going public and hitting the stock market.

The world's most popular social networking company sold 421.2 million shares at $38 a piece. The total worth of Facebook is about $104 billion, more than, McDonalds and Hewlett-Packard and Cisco.

But all of the companies listed above seem more valuable to me. After all, Cisco, HP and McDonalds actually produces a product that you can hold in your hands. Or at the very lest, offers a service that allows them to sell a physical product. What does Facebook actually make or sell? Nothing, really. Well, to be fair, Facebook does have an asset: the users. Facebook makes money by selling ads on a site that almost everyone under 45 uses. Okay, I'm exaggerating.

But Facebook has 500 million monthly average users.

Ads represented 82% of revenue in the first quarter of 2012. The problem is that this makes Facebook very vulnerable to changes in the economy. If there is a credit freeze or a slow down, advertising budgets will shrink and Facebook's revenue will collapse.

Another issue is the Facebook ads themselves. I almost never click on them or even notice them.  I'm not an expert in stocks, but I imagine that this company is going to have to figure out new ways to generate income. I don't think their ad program is worth all of this cash, but obviously many companies disagree.  I wonder if this is actually transferring into actually sales and how much.

Don't get me wrong, I don't hate Facebook, but I'm curious as to how a company that doesn't actually make anything can be worth this much money.

They make develop their gaming program. maybe Facebook could become a hub for cheap online gaming. But I doubt anyone could honestly say that this price is justified at this point.

What do you think? Is Facebook the next Microsoft or the Dot Com Bubble 2.0?

Facebook stock closes at 38.23, up 0.6 percent
Inside Facebook's money machine
Facebook IPO Makes Zuckerberg Richer Than Google Founders

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