Facebook, Twitter and the New Internet Speculative Bubble
This announcement was made several days ago and it was jaw-dropping because of the numbers it contained. As reported by The Wall Street Journal, JP Morgan declared it would invest an amount between $500 to $750 million in a fund for Internet and digital-media companies including Facebook and Twitter.
These are impressive figures that inevitably lead us to consider the distorted perception of the value of the companies involved in the Internet economy (for the sake of comparison, the cost of a Shuttle mission is usually around $450 million).
Internet companies like Facebook and Twitter are nothing more than information sharing platforms. They do not provide value added services nor provide products that create wealth directly. So far, the main indicator of their monetary value is the number of users and their geographical distribution on the globe.
It is realistic to expect that the growth rate of the most popular social networks will see a substantial braking within the next two years, reaching a “physiological” saturation. Their population will tend to settle around a limit value and, in the absence of any other significant lever, reduced growth in terms of users will be perceived by investors as a factor of recession.
Facebook, Twitter and generally any Internet company survive mainly through a business model based on advertising revenues. It always works but it is also extremely weak when the market falters. The Internet companies don’t have levers (such as launching a new product) to influence the market, but they passively suffer from periodic cycles of booms and halts. Often they are climbing fast only to fall violently.
From what we see in the figures it feels like we are experiencing the same mass hysteria that characterized the boom of the Internet companies of the late nineties. Soon thereafter the bubble of the dot com economy exploded with a deafening roar.
Apparently, history does not teach us anything.
Terremoto Yahoo! Cadono le prime teste dopo lo scandalo delle dichiarazioni false sul CV del CEO Scott Thompson
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- May 8, 2012
Facebook, the drug of the nation…
Am surprised no one has commented on this article despite the fact that what you are pointing out is very true. These valuations are just crazy.
It would be in the interest of large corporations to try and manipulate / brain wash people on a mass scale. They have been doing this with newspapers for 100s of years. Using something like facebook or twitter where so many people congregate on a mass scale across the whole globe in one single moment would make it easier to do so.
JP Morgan wants more money by investing in it? even the facebook worth is $65 Billion…..
I think this kind of news make us understand the importance of social networks today, because ofto its large popuralidad and levels of growth . Definitely networks like Facebook and Twitter here to stay.
Bubble bubble.
It is going to be a another Goldman Sachs! Waiting for the burst.
…but then again Facebook sits upon a wealth of data and information about people never before accumulated. Not even close. Facebook knows much more about me tan 95% of my “friends”. The value of this information and the control of it is hard to fathom. The power knowing it gives to a company or nation is vast.
… so a valuation of this company is open to interpretation. A bubble could come and pop, but in the end, whoever owns facebook will be powerful.