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.”