For those of you who haven’t heard of Facebook here is an extract from the “about” section of Facebooks website.
Facebook is a social utility that connects people with friends and others who work, study and live around them. People use Facebook to keep up with friends, upload an unlimited number of photos, share links and videos, and learn more about the people they meet.
Anyone can join Facebook
All that's needed to join Facebook is a valid email address. To connect with coworkers or classmates, use your school or work email address to register. Once you register, join a regional network to connect with the people in your area.
Discover the people around you
Facebook is made up of many networks, each based around a company, region, or school. Join the networks that reflect your real-life communities to learn more about the people who work, live, or study around you.”
Microsoft recently invested $240 million for a 1.6% stake in facebook while Hong Kong billionaire Li Ka-shing invested $60 million for a 0.4% stake. Using those figures, would value the company at a whopping $15 billion. I have little doubt that the 4 year old company and its 23 year old founder are brilliant but are they worth $15 billion? Just to put this into perspective here are the market capitalizations of some popular U.S large caps.
Walgreens – $38.3 billion
Brookfield Properties – $7.9 billion
Lowes – $35 billion
Newmont Mining – $20.6 billion
Although there is no denying the popularity or marketing potential of Facebook I would have reservations about investing in an online “social utility” that is valued the same as 75% of Newmont mining. The valuation may be appropriate if its current growth were to continue indefinitely however, personally I think there is a chance that Facebook has the potential to become a “flavour of the month”. Anyone remember geocities? Of course there is a chance that it may stick around however, if I had $15 billion to invest I think I would rather take my chances and buy 100% of Brookfield Properties and half of Newmont Mining than gamble on Facebook. Which would you rather own?