The Facebook Bubble: Back to the Year 2000!
Published in Marianne
(France) on 1 January 2011
by Hervé Nathan (link to original)
A huge, speculative bubble is growing before our eyes as Facebook is valued at, say, over $42 billion. The most astonishing thing is the irresponsibility of the media and the analysts, who are completely blinded by this "value," which goes back to the mistakes of the early 2000s.
It's the most amazing figure of the season. Facebook is worth, say, $42.3 billion. To put this in perspective, Renault capitalization is worth around $16 billion. They say: Yes, Renault is big, but it doesn't make any money. The problem is that Facebook doesn't make money either! The only information given by the Internet company, which is not listed and therefore does not publish its accounts, is a turnover of less than $1 billion. We are promised that it will double in the coming year. Probably; but what are, or what will be, the profits? It's a mystery. In 2009, Facebook promised profits in 2010. The only statement found on the Internet is that at the beginning of 2010, Facebook's bank account was finally "positive." So, the cash position is positive, but this says nothing about net profit before tax!
For those who remember the bubble of new technologies, the assessment of Facebook's value looks exactly like the tall tales of the 2000s, when people counted on potential future benefits to bring on the digital age, even if it was unrealistic, and when people vilified the "brick and mortar" — the old industry — so as to attract the juiciest investments possible. The bubble had burst a few years later. It was thought that the lesson "what goes up must come down" had been learned.
Even serious newspapers seem stricken with amnesia. In August, the Financial Times estimated the value of Facebook at $33.7 billion in an article that mentions neither profits nor losses, while Facebook shares are trading in unregulated transactions. We do not even know the flow (or volume) of transactions! Hello, investment advisors.
The best thing happened when Facebook madness gripped the "market" after a lunch between Mark Zuckerberg, founder of the social network, and Steve Jobs, Apple's CEO. All we know is that they talked about a partnership, but an analyst from the Danish investment bank Saxo Bank came up with the entirely hypothetical idea of Apple taking over Facebook. Basically, Apple wants a partnership with Facebook, but Zuckerberg refuses, so Jobs, who absolutely wants the technology and the 650 million unique monthly visitors to Facebook, will launch a take-over bid. Apple is very rich because it has $51 billion in cash. Saxo Bank concludes that Apple would pay up to $51 billion for Facebook. As a result, the value of owning Facebook should go up until it reaches that sum! And Saxo Bank has the nerve to say that this idea is totally crazy, but that is precisely why it could happen!
At this level of speculation, it is no longer a bubble; it is a huge intellectual scam! It could also prove to be a very short scam since the SEC has opened an investigation. And the Facebook bubble leads to other bubbles. It seems that the best deal of the year would be not Facebook, but Twitter ...
I hope that fans of the Antibobards have a great New Year, because 2011 looks terrible ...
P.S. An unexplained incident disrupted the publication of this article. Our apologies to all readers.
It's the most amazing figure of the season. Facebook is worth, say, $42.3 billion. To put this in perspective, Renault capitalization is worth around $16 billion. They say: Yes, Renault is big, but it doesn't make any money. The problem is that Facebook doesn't make money either! The only information given by the Internet company, which is not listed and therefore does not publish its accounts, is a turnover of less than $1 billion. We are promised that it will double in the coming year. Probably; but what are, or what will be, the profits? It's a mystery. In 2009, Facebook promised profits in 2010. The only statement found on the Internet is that at the beginning of 2010, Facebook's bank account was finally "positive." So, the cash position is positive, but this says nothing about net profit before tax!
For those who remember the bubble of new technologies, the assessment of Facebook's value looks exactly like the tall tales of the 2000s, when people counted on potential future benefits to bring on the digital age, even if it was unrealistic, and when people vilified the "brick and mortar" — the old industry — so as to attract the juiciest investments possible. The bubble had burst a few years later. It was thought that the lesson "what goes up must come down" had been learned.
Even serious newspapers seem stricken with amnesia. In August, the Financial Times estimated the value of Facebook at $33.7 billion in an article that mentions neither profits nor losses, while Facebook shares are trading in unregulated transactions. We do not even know the flow (or volume) of transactions! Hello, investment advisors.
The best thing happened when Facebook madness gripped the "market" after a lunch between Mark Zuckerberg, founder of the social network, and Steve Jobs, Apple's CEO. All we know is that they talked about a partnership, but an analyst from the Danish investment bank Saxo Bank came up with the entirely hypothetical idea of Apple taking over Facebook. Basically, Apple wants a partnership with Facebook, but Zuckerberg refuses, so Jobs, who absolutely wants the technology and the 650 million unique monthly visitors to Facebook, will launch a take-over bid. Apple is very rich because it has $51 billion in cash. Saxo Bank concludes that Apple would pay up to $51 billion for Facebook. As a result, the value of owning Facebook should go up until it reaches that sum! And Saxo Bank has the nerve to say that this idea is totally crazy, but that is precisely why it could happen!
At this level of speculation, it is no longer a bubble; it is a huge intellectual scam! It could also prove to be a very short scam since the SEC has opened an investigation. And the Facebook bubble leads to other bubbles. It seems that the best deal of the year would be not Facebook, but Twitter ...
I hope that fans of the Antibobards have a great New Year, because 2011 looks terrible ...
P.S. An unexplained incident disrupted the publication of this article. Our apologies to all readers.