Does Facebook deserve a 100 billion Valuation

some  questions in my Mind as I struggle to bet my money and pension savings on Facebook IPO

1) Revenue Mix- What percentage of revenues for Facebook come from Banner ads versus gaming partners like Zynga. How dependent is Facebook on Gaming partners. (Zynga has Google as an investor). What mix of revenue is dependent on privacy regulation countries like Europe vs countries like USA.

2) Do 800 million users of Facebook mean 100 billion valuation ? Thats a valuation of $125 in customer life time in terms of NPV . Since ad revenue is itself a percentage of actual good and services sold- how much worth of goods and services do consumers have to buy per capita , to give $125 worth of ads to FB. Eg . companies spend 5% of product cost on Facebook ads, so does that mean each FB account will hope to buy 2500$ worth of Goods from the Internet and from Facebook (assuming they also buy from Amazon etc)

3) Corporate Governance- Unlike Google, Facebook has faced troubling questions of ethics from the day it has started. This includes charges of intellectual property theft, but also non transparent FB stock option pricing in secondary markets before IPO, private placement by Wall Street Bankers like GoldMan Saachs, major investments by Russian Internet media corporations. (read- http://money.cnn.com/2011/01/03/technology/facebook_goldman/index.htm)

4) Retention of key employees post IPO- Key Employees at Google are actually ex- Microsofties. Key FB staff are ex-Google people. Where will the key -FB people go when bored and rich after IPO.

5) Does the macro Economic Condition justify the premium and Private Equity multiple of Facebook?

Will FB be the next Google (in terms of investor retruns) or will it be like Groupon. I suspect the answer  is- it depends on market discounting these assumptions while factoring in sentiment (as well as unloading of stock from large number of FB stock holders on week1).

Baby You Are a Rich Man. but not 100 billion rich. yet. Maybe 80 billion isnt that bad.

Author: Ajay Ohri

http://about.me/ajayohri

1 thought on “Does Facebook deserve a 100 billion Valuation”

  1. I don’t pay for ads on Facwebook. I[m one of the Billiojn or so people that use facebook to post pictures, poke and update my status. I rarely click on the ads and usually ignore them. the web was meant to be FREE. I can post up a nasty pic and get a few thousand hits, but does that mean I’m worth a few thousand bucks? Not. Mark deserves his money and the credit for bringing people into the social media world, but facebook isn’t a microsoft or Apple and doesn’t deserve to be a part of that realm of companies. They have NO tangible goods to sell, just info. Companies can create pages for FREE. Free is a good thing and the web deserves to be free from the same old Smoke and mirror investing that have sunk our economy and country into this recession…don’t go public Mark…be like Levis, make a good pair of jeans and slowly but surely reward your loyal employees. In 2-3 years there WILL be another social media site that will rival and/or surpass yours so be smart…

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