Facebook rolled the dice by shelving their IPO until at least 2012. Google+ is gaining hype and users daily while Facebook is seeing it’s first months of decline in US user accounts. This environment will not lend to the huge share price surges the hail mary month over month growth from the past 2 years could have produced.
Facebook’s own popularity may become it’s biggest enemy over the next year. I’d compare it to being at the biggest Frat Party in History and the last keg just ran out. Everyone is just standing around wondering why the hell they are growing virtual crops and living the life of a mafia thug. Did you ever MySpace?
Trades of FB shares on private exchanges over past weeks are already valuing the company north of $70 billion, that’s 30x 2011 projected revenue (not profit). With negative US user growth that multiple will have to come down. If Facebook increases revenue and profits 100% in 2012 but the price to sales ratio drops in half, you still get the same valuation 18 months from now.
How much of FB’s $70billion in projected 2011 revenue is based on any type of reoccurring revenue? What if a lot of these big brands only see value from doing a single large FB campaign then don’t come back for more? Facebook themselves have recently closed their doors to several large advertisers. Ad rates have rebounded strongly over the past 3 years for publishers, will FB have resistance to plunging ad prices when the tide turns the other direction?
The excitement for Facebook isn’t going to die anytime soon. According to FB, 1 out of 9 people on the planet are using their social network (close to 700 million). Public valuations changes of Funds and Companies who’ve bought Facebook shares on private exchanges suggest the value of the shares may be 2-3 times higher on the public market. Clearly there is a HUGE demand for shares.
The race is on. How much air will Google take out of Facebook’s balloon before FB executives can dump their shares to the public?