Facebook bubble reached a bigger size than expected as early as the first day of real market trading. First the IPO has outrun the expectations motivating additional shares to be placed on sale. Then the enthusiastic investors pumped the price additionally up. But at the end of the day the price was back at the IPO level.

At the current moment Facebook is nothing else than a hi-tech Ponzi scheme and may be this bubble will crash faster than expected.

At the IPO the share-price evaluated the company about 26 times of its overall income. If no expenses this means that the investor is to return his investment in 26 year period. But in fact expenses do exist and if the company value is divided to the net profit it may result in about 100:1 ratio. I.e. the investor will have his money back in 100 years. This is the same as to buy shares of Ford Motor Company in 1912 and wait till now for repayment of the investment. Looking back in history, would this decision be clever?

No. Not exactly...

Facebook has no a real business model to hold such a high company-value. Most of the shares-price is based on expectations of future business development. But this type of business is called exactly "Ponzi" scheme. When you base your profit plans on the hopes that something (not clear what) will happen and will bring much money - this is Ponzi behavior...

I think the real value of Facebook is not $104 billion as the IPO has shown, but no more than $5 billion. It is yet a very successful project, but not a magic project as is being sold now.

I think Facebook is monetizing its resource to be media. Yes Facebook is media and has an enormous audience. But even a media with 900 million spectators does not cost $100 billion. But if you use the power of this media and also the other media interest, to apply the view that this is a great project that costs $100 billion, then at the end you really can have a $100 billion value. But this is the value of propaganda and not the value of real business content in company. The same is the philosophy of "Ponzi". It is an ad-manipulation business. You create a company and start advertizing it, creating an artificial image of it. People are buying the fake image, but in company the value is much lower. There was much such companies during the dotcom bubble 10 years ago.

The fact that in "Ponzi" you use the new investors' money to pay the previous investors is secondary. The main and more important fact is the propaganda and mystic advertisement.

My prognosis is that in no more than a year time we will see the Facebook price where the real economy factors say it must be.

Dobri
May 19th 2012