Is Facebook Really Worth $50billion?

It is all over the newspapers & television today that following an investment by Goldman Sachs and a Russian investment holding company, Facebook is worth $50billion. Most people I spoke to thought that $35billion was crazy (the price at which Accel Partners sold shares worth $500million at) … and that was only 2 months ago!

Most idiotic reporters are claiming that Goldman are investing their own money into Facebook and getting excited because Goldman Sachs are considered rather good at investing. However this simply cannot be true – the days of banks being allowed to invest their own funds has passed, remember? The more informed media have accurately reported that what Goldman has actually done is create a special purpose vehicle to allow some of their clients to buy shares in Facebook … also enabling Facebook to avoid SEC scrutiny which would be caused by having over 499 investors. The SPV is considered a single investor (even if it is actually a collective of them).

The most disturbing fact about this news is the valuation of Facebook. $50billion? Really?!

That would make it just 1/4 the size of Google. Or 2/3rds the size of McDonalds. I thought DotCom hysteria was long gone and lessons from a decade ago learned. Apparently not.

Even the most generous estimates of Facebook’s revenue come in around $2billion for the year 2010. That’s revenue, not profit. The bulk of that revenue will come from virtual currency and virtual goods sold by people like Zynga. Unfortunately Zynga’s active users already peaked and they are desperately trying to create new games to prevent a deterioration of revenue. An ominous sign for Facebook.

Facebook will continue to add users – if only as more of the World’s population go online, however what will happen to existing users? The nature of these social networking sites appears to be that people get bored and move on to something newer and more exciting. The media hysteria surrounding Facebook just makes me more nervous, I see so-called analysts and experts on Bloomberg and CNBC saying that Google could be threatened by a couple of students in a garage somewhere … yet Facebook is unstoppable?! Lets be clear, it is FAR more difficult to invent a better search engine than create a new social network with some new and cool features. Facebook could be destroyed just as quickly as it has grown. I don’t think I’d invest in Facebook at a $5billion valuation, let alone $50billion.

But who knows when the bubble will burst … at this rate, Facebook may become worth more than Google before blowing up!