Is Facebook worth anywhere near $10 billion? Nope! Not even half. They could go public tonight and possibly raise that much, but that valuation would only be temporary.
Never mind that, a Russian company was the latest to get rooked by the social media hype machine…
Facebook Inc., the world’s largest social-networking service, said it received a $200 million investment from Russia’s Digital Sky Technologies, valuing the company at $10 billion.
Don’t worry, that was only the second-dumbest investment into Mark Zuckerberg‘s baby…Microsoft (MSFT) was talked into plunking $240 million down for a measly 1.6% stake back in the Fall of 2007. That gave Facebook a $15 billion valuation. Also nonsensical. Even though this was chump change for MSFT, they should’ve gotten way more of the company for that cash.
I’m not hating on Facebook, but I’ve already seen this movie and I know how it ends.
Facebook, while wildly popular, has no business model. Don’t get too excited about banner ads, they don’t convert on social networking sites. There are plenty of advertisers who want to be seen on MySpace, for example, and impressions are limitless, but any direct response marketing guy will tell you that ads on social networking sites simply don’t turn into leads or sales. At least not at any rate to justify this type of valuation.
Full Disclosure: I currently manage accounts that are long Microsoft (MSFT).