Facebook, Groupon, Myspace; are we blowing bubbles?

Facebook has had good run with its valuation but how accurate is it? The company is valued somewhere between $50-$80bn...and all of this within 7 years. Looking at it another way, that’s $2.7m for every day of the 2500 days it’s been in existence. In mid January, the Goldman Sachs investment of $500m allegedly valued the company at $50bn. A tactical move as it locks the bank in for earning fees in any future IPO (where a significant portion of their revenues derive) but quite importantly it pre fixes a high starting value for an initial public offering (IPO) or floatation (having been an analysts at Goldmans, everything they do is meticulously planned and calculated). The less equity that is exchanged for a specific investment amount, the greater the company is valued at, i.e. if you split 1% of a company share by 100,000 (0.00001 shares) but sold that for £500, in theory that would value the company at £50m. Are the banks meddling again?  

Groupon is another recent success that has hit the headlines, which in just over 2 years of existence received an offer in January for $6bn from Google. Unlike Facebook this entity is pressing forward for an IPO but nevertheless, these growth rates are staggering. So what happens to these internet companies after time...Myspace, Friends Reunited are some examples of what can go wrong.

Interestingly Facebooks valuation is similar or exceeding that of Boeing (but on an open market). Boeing designs and manufactures aeroplanes, whereas you could say Facebook has people posting holiday pictures and nattering about the latest TV show or worse. Is there a bubble that’s likely to burst on this? Some people think so. Others believe that with a user count of over 500m and forecasts of doubling their advertising revenues to £4bn per year, Facebook is here for much longer. Who still uses MSN when Facebook offers and all round service including instant chat?

Recent headlines show that websites will now be legally accountable for their content by the ASA (in the same way TV is), confirming the idea that the internet plays a significant part in people’s decisions and lives. The reduced barriers to entry make it an easy playground to make money, which is fine if it’s done fairly. It seems the virtual environment of the internet has finally become part of our real world. As such, there are some interesting times ahead.  

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