Saturday, 2 June 2012

'Facebook's Valuation Vs. Proven Internet Companies..' 
'Facebook (FB) is an amazing company with nearly a billion active monthly users (called AMU in its S1 documents.) When FB had its IPO at $38, those who bought the stock were more impressed with the growth of users than the disclosed decline in quarterly revenue.

I didn't buy the stock as I worried how the company would extract earnings from its users without driving them to other sites or to do something else with their free time, such as exercise or visit with family on the phone. Valuing a company on AMUs rather than earnings is little different than opening a sit-down restaurant, giving the food away for free and then valuing the restaurant on tip jar growth. How do you know how many users will eventually pay for the food they like and how many AMUs are homeless?

While $38 was far above what I wanted to pay for a FB share, it is ...'


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