why is a seven year old service company worth more than a company that produces physical assets?
If I were to break down the Facebook IPO announcement to the lowest denominator, it doesn’t make any sense that the Facebook valuation is between $75 billion to $100 billion. It doesn’t produce anything nor does it own many tangible assets. On the other hand, General Motors has lots of physical assets and it produces a tangible product that can be sold worldwide. Yet financial analysts are estimating Facebook to be worth almost 100 billion dollars.
Facebook CEO Mark Zuckerberg wrote, “If nothing else, the IPO will certainly provide more money for Facebook to create better services.” That may be true but services is a commodity than can be in favor today and public disdain next tomorrow.
It appears today’s marketers are spending display advertising dollars in Facebook without realizing any ROI yet. Marketers feel compelled to be in Facebook because it has hundreds of supposed millions users. Facebook revenue was pegged at $3.1 billion which was derived from display advertising. Facebook also earned over $500 million from Zynga games played on Facebook. Question I have, will Zynga gaming revenue be sustainable over the long-term? I wouldn’t bet the “FarmVille” on it.
Once Facebook becomes a publicly held company, its quarterly earnings calls will come under deep scrutiny, mainly the privacy controls it claims to have protecting the users information and how this information is used to sell display advertising.
When the United States economy is driven by the social network websites products and services it offers the public and not by companies that produce real worth (such as the manufacturing sector,) something is askew with the IPO valuations and the impact it will have on the market.




