Novice Investing - Facebook Loses Face

Date: Monday 13th 2008f October 2008 06:10:47 PM

Facebook Loses Face - 04/20/2006

By: Hari Wibowo

Facebook, a social networking site that 'reportedly' reject a $ 750 Million buyout for a $ 2 Billion price tag, was featured in our commentary a while ago. At the time, we feel that the asking price for Facebook was ridiculously high. You would think that a company that was founded by three sophomores would take the $ 750 Million offer but no. They want more. So, what do they get?

$ 25 Million in private funding. On Wednesday April 19th, Facebook reportedly raised $ 25 Million from venture-capital firms. Gasp. I wonder how much stake that would be. Let's assume it this way. If venture capitalists only took 5% stake in this fund raising effort, then Facebook is actually 'only' worth $ 500 Million. That is a far cry from a $ 2 Billion asking price and one might wonder what causes Facebook to devalue that quickly. Or maybe, calling for the $ 2 Billion price was merely Facebook's bluff. If that is the case, this is the kind of management that one needs to avoid if it were to go public.

So, now what? By playing hard to get, Facebook currently found no suitor. I will be surprised if it will be acquired in the next three months. The fact that it raised money, signals that it needs larger cash infusion to keep abreast of competitors such as Myspace, which was acquired by deep-pocketed Rupert Murdoch.

I believe that social networking site is in its infancy. However, only the strongest survives and Facebook by no means is guaranteed to be the survivors. While it has a unique products, deep-pocket competitors can easily establish themselves if they want to. When someone is knocking, you better open the door and greet them nicely.



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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding any securities.

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