Facebook’s most recent full year financials show annual revenues of $3.7 billion and net income of $1 billion and sets the benchmark to contemplate the company’s initial IPO valuation of $104 billion. But, we must also consider the above graph that shows a recent trend of revenue growth decelerating. As a comparison to Facebook’s initial $100 billion plus IPO valuation, I want to throw out the company Amazon, which currently has a market capital or firm valuation of $97 billion, annual revenue of $51 billion and recent net income of $.6 billion. On the surface, or at “Face” value, it seems plausible that Facebook over-time might be able to approach the market valuation of Amazon. And, Facebook now has at least $10 billion in cash (thanks to the $6.8 billion cash contribution from the “public”) to fuel innovation or purchase additional companies.
But there is, in my opinion, a yawning gap between Amazon and Facebook (neither one in Google’s hemisphere). Amazon has a “business purpose” that is clear to Amazon users and vendors. Amazon matches customers with sellers of products and provides information and prices relative to competition and enables users to avoid going to the mall (which I hate unless I am with a smoking hot woman) and finding or paying for a parking spot. Facebook, on the other hand, pretends the mission is to “help you connect and share with the people in your life”.
Amazon has a straight forward and honest purpose with a value proposition to its customers (buyers and sellers), while Facebook masks the public purpose (users) with the real purpose (sellers, marketing, advertising), which is to “monetize” the users. Users are the fish, and the true customers (and Wall Street Insiders and Facebook insiders including Zuckerberg) are sitting on boats drinking beers casting down the bait. And the more fish that bite on the hooks, the richer Zuckerberg, insiders, and the well-connected investment community becomes. If the users and fish take the bait, Facebook will reach the valuation of Amazon and perhaps even that of Google. But, I don’t think that is going to happen. I think the users of Facebook, or almost 1/7 of the world population, are the smart ones that don’t really give a shit about the advertising pop up schemes.
I believe that most users of Facebook quite simply enjoy using the access of the internet for free to serve their own individual agendas, whether that is to get laid (“fuck-book”), be heard, connect with friends and family, make new friends, or other things not covered in the aforementioned. Most users don’t consider Facebook as a means to decide what to buy. And given 1/7 of the world population is already signed up (and not considering competitive alternatives), there isn’t a hell of a lot of user growth potential. The only major potential in revenue growth is “monetizing” the current users and in fact changing the user’s perspective of what the purpose of Facebook is.
Therefore, I believe Facebook is going to fizzle out long-term, but the insiders connected with the Facebook IPO, including Zuckerberg, don’t really give a damn. The game, despite the recent drama surrounding the Facebook IPO circus, is already over folks. Billionaires and millionaires have already secured their gains and in the next year or two they will increase their gains at your expense. Facebook’s mission is to prolong the idea that the company might be worth that of Amazon or even Google for one or two years, enough time for all the insiders to dump their pre-IPO shares and cash in. And, that cash fueling their personal wealth is going to come from the public via 401K’s and retail investors that fail to see the big picture. Of course, I could be totally wrong and the users may decide that Facebook is the best way to decide what products and services to purchase as opposed to a means to “help you connect and share with the people in your life.” And if the purpose is to connect and share with the people in your life to purchase goods and services (not referring to free sexual services), then I feel somehow we as a species have certainly lost our way.