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Facebook and Intel: A Tale of Two Frenzies

Posted by: Rob Hof on January 15, 2008

These companies couldn’t be more different: Intel, the big chipmaker whose stock in trade is billions of silicon chips, and Facebook, the online social network whose business is—well, not very much yet, but ultimately getting its members to take on the role of advertising channels to their friends. But in one sense they’re both examples of how investors can go a little crazy.

Intel’s stock at this moment is plunging about 14% after-hours following what seems like a quite sensible comment from the CFO in the fourth-quarter earnings comment saying they’re cautious about the company’s outlook thanks to a possible recession. Should Intel really be worth almost $20 billion less now than an hour ago?

Facebook, meanwhile, just got yet another investment from German entrepreneurs Alexander, Marc and Oliver Samwer, an undisclosed amount but presumably at the $15 billion valuation Facebook got when Microsoft invested $240 million last year. As I’ve said before, I can understand Microsoft investing what is, for it, a relative pittance no matter what the valuation, because it’s a bet on its long-term future. But how can the Samwer brothers, as well as Hong Kong billionaire Li Ka-shing, who also invested last year, investing at this kind of valuation, expect any kind of reasonable return in the next few years on this kind of valuation when Facebook’s revenue model not only isn’t proven but has run into some sizable obstacles? I mean, Facebook is probably going to be a great business, but aren’t these investors getting a little ahead of themselves?

It’s a volatile time in tech, and understandably so when the economy is on the cusp of a real turn for the worse. But I can’t help glancing at a Bizarro comic I have posted on my wall, picturing a Native American with his ear to the ground, listening. He relates what he’s hearing to his companion: “Six billion people running in circles.”

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Reader Comments

Dawn Douglass

January 15, 2008 09:50 PM

I agree with you, Rob. Facebook is way over valued. I don't see it being sustainable as a large company. Young folks are too fickle to stay loyal and older folks just don't have the time it takes to keep caring about all that noise.

My husband worked for Intel until his death in 2006. I remember when the stock fell in the late 90s from $80 and something to around $20 overnight. Boy, that hurt.

I feel for the Intel family. The company treated us very well. I hope the stock price recovers.

mark ivey

January 16, 2008 03:13 PM

I agree too Rob. FB is wildly overvalued--smell a whiff of the dot-com days?--while Intel has been beat down to ridiculous levels. The price is probably close to when I left the company in 01, despite its huge market share, rising earnings, technology prowess and global manufacturing facilities--which cost $2bill or so apiece to duplicate. I don't feel sorry for Intel--I was laid off after all and they've let go thousands of good people--but from an investor view, the company deserves some credit.

Brandon W

January 16, 2008 04:59 PM

I know how to make a $1 billion/yr company out of Facebook (if they want to know, they can hire me - for a lot of money)... but it isn't the way they're doing it.

They might be worth 1/10th their current valuation. Certainly not Intel.

Reuven Cohen, CTO Enomaly Inc

January 17, 2008 10:34 AM

Rob, you clearly don't get it, technology is going through a paradigm shift where computing is moved away from personal computers or an individual application server to a “cloud”. Companies like Google, Amazon, Facebook, and Yahoo understand this.

Investors who value facebook at 15bln understand this fundamental shift and want to get in on the bottom floor.

Rob Hof

January 17, 2008 10:53 AM

Reuven, I get it. My beat is the Internet--Google, Amazon, Yahoo, Facebook. But I'm talking about whether investors are being sensible now, not 10 years into the future. Sure, Facebook might be worth $15 billion some years into the future. But is it worth that much now? No. I don't see how that's smart investing unless you have more money than you know what to do with.

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.



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