Tuesday 15 May 2012

The Farcebook Frenzy

fa(r)cebook FRENZY

The frenzied expectation of Facebook's public offering on Friday can only be compared to the irrational exuberance ahead of the burst of the hi-tech bubble ten years ago. Zuckerberg's amateurish concept and infantile knowledge of economy & markets are mainly responsible for the daily hype about the future price of the Facebook share. He started his 'expectations' at $20 per share, which would have put a stock value of FB to $74 billion. In the past 3 weeks this fantasy has evolved into a share price of $29-34, making FB worth $104 billion, on paper.


Based on its economic viability, the ability to raise earnings and achieve profits by the limited means FB can provide, Zuckerberg's delusions - and those of the herd of sheep racing towards the abyss - the purchase of shares will turn into a financial disaster of historical proportions.

From its business plan and proposals, FB could raise between $300 - 500 million in advertisement revenues. Other contractual links provide $250 - 300 million more. But to justify a $100 billion capitalization, FB would need to earn $8.5 - 10 billion per year. Unless FB starts charging its users a substantial monthly fee ($12-16 per user), the high-flying plans will quickly implode, with possible legal consequences for Zuckerberg: fraudsters of less magnitude than his scheme have received 15-30 years in prison.

Where is the realistic value of the FB share as of today? Experts estimate $4.50 -$5.25 per share, still putting the company's value based on the number of shares offered to around $15 billion.

Who should invest in Facebook? Anyone who can afford to decimate his 'investment' by 70% in the first 12 months, and needs the write-off for tax reasons.

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