If you were able to snap up 100 shares of Google Inc. when it went public in 2004 at $88, you would have been sitting pretty about three months later when the stock doubled. Of course, today your precious Google shares have risen to about $650 a share and will be bequeathed to your grandchildren as they watch the search engine company branch out into telecom, handhelds, consumer goods, copper mining and auto insurance in the generations to come.
For those of us who missed the Google IPO, Facebook may go public in about a years time. Many believe this will be a similar once-in-a-lifetime opportunity to get in on a company that will quadruple its value in a few short years.
Or will it?
The Facebook phenomena has had a tremendous impact on the Internet industry and has defined social online networking, a cultural and financial phenomena unknown a decade ago. Recently, Google was surpassedby Facebook as the most visited site in the U.S. by a slim margin.
Another survey has indicated Facebook and Twitter-users obsessive behaviour; 49% of users check Facebook or Twitter first thing in the morning while 15% say that its how they get their news in the morning.
The rewards for this performance are that Facebook is now valuedat between US$35 and $40 billion as analysts begin to estimate what its IPO would be worth.
But Facebook it is still dwarfed by Google. Google has changed the way all media companies operate and has transferred that clout into hard dollars; last quarter saw revenues climb to US$6.6 billion compared with $5.9 billion the previous quarter.
Despite the huge financial opportunities offered by Facebooks position as social media king, Facebook does not have the competitive advantage that Googles search engine dominance does. We need only look at Twitter.com, which took a tiny social networking feature the status update and parlayed it into a $1 billion entity of its own in a few short years. Take a look at Chatroulette– on the other hand, donttake a look at Chatroulette – to see the often bizarre range of possibilities social networking offers.
Whereas not even Microsofts Bing! search engine will match Google, the social networking area is rife with competitive pressures, more of which will undoubtedly emerge as more of the online audience migrates to mobile devices.
Investors should stick to some fundamental analysiswhen it comes to buying into Facebook a couple years of revenue growth will indicate its long-term viability and not the number of page views it can generate.