Why I think Facebook isn't worth US$100,000,000,000 (Part I)

I don't see any reason why Facebook should be worth 100 billion USD. Yes, it has brought people closer and in the words of Time magazine "mapped human relations", but in the big bad world of business, it's an investor's nightmare. How does fb make money? Through ads. How much of the area on the screen can fb monetize? Very little compared to Google that can practically monetize every square inch. For fb to increase revenues, it needs more advertising - which will only happen if users keep increasing - which seems less likely as the membership is already around a billion users - which means fb needs to increase what I call the utilization factor per user.

How can fb increase utilization factor per user? Through more 3rd party apps and services using the existing platform.

Now, when fb started making financial results public, the first one - just days before the IPO - showing doubling costs startled smart investors who fell short of calling the whole thing a sham perpetrated by investment banks. It's not difficult to see how VCs and hedge funds who bought fb stock in pre-IPO stages reaped the mother of all windfalls once fb started trading. Once they dumped their stock and got out of the position, the stock tanked and has been ambling along ever since. At this time, the market cap pf fb is around US$70,000,000,000 (around 30% lower than the IPO valuation) and a P/E of a whopping 104!

Also, it is paying obscene amounts of money for acquisitions of companies making no money - case in point being Instagram. Another thing, what is the underlying need fb serves? None. It thrives on people spending time on it entertaining themselves. Which inherently means that it's a means of entertainment. And things that entertain today or rather entertainment platforms today (to be more accurate) may not remain amusing for a long time.

Now, Google and Facebook both make money using targeted ads. However, users are happier seeing targeted ads on Google than Facebook, simply because Google is meant to search and find stuff, whatever it may be. Fb is not meant for finding stuff, it is meant for social interaction and sharing photos, music, articles, or whatever. Seeing ads is a distraction! Do you really want some guy to come and try to sell you something when you are talking to an old friend or a cute girl you just met?

Google offers the right advertising at the right time whereas Facebook offers the right advertising at the wrong time!

More rants to follow when I think up something.....