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I don’t know if Facebook is worth the 500 times earnings or $15 billion that the Microsoft investment says it is but it does reflect the bubbly atmosphere surrounding Silicon Valley these days. And it kind of makes me nervous.
We don’t need two burst bubbles coming at the same time—housing plus tech. That would certainly tank the economy which is already slowing down rapidly under the weight of the subprime/structured finance debacle. The totally unexpected $8 billion writedown on mortgage-backed securities by Merrill Lynch and the layoff of 3,000 people by Bank of America due to similar mortgage problems is scary. Merrill didn’t know the extent of its own damage two weeks ago. And the two big credit rating agencies were surprised as well. So what’s really happening out there?
Of course, the $240 million Microsoft is putting into Facebook is chump change for a company with $23 billion in cash. And it is the best way for Microsoft to try and catch up to Google in online advertising. Facebook is becoming a social operating system with nearly 50 million active users growing by 200,000 a day. Google has a lock on advertising on MySpace, so…
But even Google is trading at “only” 53 times earnings while Facebook, with just $30 million in profits on $150 million in revenues, is trading at 500 times earnings.
Wowie. Are we jumpging the shark here—or just watching the new world of social networking and advertising evolve? Is this AOL-Time Warner or…just what?
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