Facebook's IPO will be the worst investment in tech history

Facebook Logo

As a company, Facebook isn’t making many friends in high places. Sure, Microsoft still loves them, but they’ve been targeting or targeted by several larger and smaller companies, including Google, Apple, Twitter, and LinkedIn. When you have that kind of firepower amassed against you, there will be casualties.

So far, Facebook has been able to stay on top. They have the power of the people, and the people like them. Nobody other than Twitter (to a minor extent) has been able to challenge them at all on their own turf of social networking. If anything, Facebook has been the sleeping giant in the world of search – Google is likely more concerned about them jumping in the mix than anything that Bing is able to do.

The potential for disaster still exists. Despite their tremendous size and influence, they don’t have the deep pockets at this point to go head-to-head with Google. They don’t have the hardware or sheer business-fortitude to make an enemy out of Apple. Twitter is more nimble and has Google on its side. LinkedIn has already had a successful IPO and seems to be the darling of the higher-end social networkers today, which could pose the biggest problem for Facebook in the long term.

 

The Math

Bad Math

Establishing a value for a company is normally pretty simple. You take the yearly revenue and multiply it by anywhere from 3 to 6 depending on other factors such as growth potential, market share, and financial trends.

For Facebook to be worth $100 billion as many believe it will be valued at when the initial offering happens, they would need revenue close to $16 billion a year. Last year, estimates put their revenue at $2 billion. This year, it should double, but unless they are able to pull out some new major revenue generators in the next year, the estimates put their 2012 revenue around $5 billion.

It’s not enough despite the intangibles (userbase, mass adoption, potential revenue channels, etc). Google had revenue over $20 billion a year when they opened at $160 billion. They were a more established company with a deeply-embedded primary product. Facebook is a child in the world of internet businesses.

Even if you stretch the math and put their revenues at double what’s expected this year, they should be valued at most around $50 billion.

 

The Conclusion

Craps Table

We love Facebook. It has been able to do things that no other company has accomplished in its short life. It has united families, helped change governments, raised awareness, and brought people together in a venue that puts everyone on equal ground. It is useful to many, fun for even more, and it has a bright future.

It just doesn’t have a $100 billion future. The IPO will come, possibly in less than a year. It will be successful. Early investors and employees will be rich. Unfortunately, it will not generate the returns that people will expect. It can’t. All of the chips are stacked against it in the background and not enough people will look behind the curtain to see the negatives.

We’ll end with this infographic by our friends at Namesake that takes a look at the road Facebook has traveled to reach this point of potential IPO. Are you going to be an investor?

Facebook IPO
Written by JD Rucker

+JD Rucker is Editor at Soshable, a Social Media Marketing Blog. He is a Christian, a husband, a father, and founder of both Judeo Christian Church and Dealer Authority. He drinks a lot of coffee, usually in the form of a 5-shot espresso over ice. Find him on Twitter, Facebook, and Pinterest.
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Comments
  • Anonymous

    Wow that makes a lot of sense dude, I mean seriously who would have thunk it.

    web-privacy.no.tc

  • http://www.youbrandinc.com scottscanlon

    great read… hard to fathom that Facebook could have a higher valuation than Amazon or a third of Apple. The Myspace comparison is tough though… first the platform was not as widely adopted as FB. Second, Myspace didn’t get it’s hooks embedded into websites or sign-on. Also it to me it seemed more personality focused and not platform focused. Ultimately I agree with most of your points on the valuation front but I’m wondering really where FB as a platform will go beyond that.

    • http://soshable.com JD Rucker

      It’s easy for me to be harsh, perhaps a little too harsh to make a point. You’re right – Facebook is definitely not in the same situation that MySpace was in when they were on top, but it’s easier for people to see things from a historical perspective.

  • http://www.facebook.com/profile.php?id=1331550360 Anonymous

    You are complaining about having an app on a ipad when you could just open your browser and go to facebook and get ALL THE FEATURES that the app wont have. When people think apps are important it shows the level to which they understand technology. APPS are going to die. The future is in web apps, have you seen the mobile google homepage? its only the beginning and its where the future lies. Mark my words. 

  • Anonymous

    Facebook is a going to die. 

  • Anonymous

    The $600M net income is a lie.  Facebook is practicing accounting fraud.

  • Anonymous

    Facebook is like Myspace.  People don’t use Facebook anymore because it is not something people like. 

  • http://www.techblaster.net/ Techmaker

    With the development of Google Plus, Facebook faced a serious trouble in keeping the usual amount of traffic to Facebook. But as I see, Google plus didn’t do a huge damage to Facebook.
    What is your opinion?

    Anyway thanks for the above share.