Facebook and Twitter Are One Massive Bubble |
If you’re an investor in Facebook and Twitter, stamp sucker on your face.
Well, sell if you possibly can but if you can’t, you’ll likely see your investment is worth 80% less in five years.
I don’t think social networking is going away. In fact, I think Facebook at least will maintain its activity levels.I don’t see it growing exponentially. Those who do are buying into the same hype that tech investors did in 1999 and look where it got them.
If you look at Facebook’s revenues, you’ll get a little cautious. First, their revenues were around $265 million last year, not exactly amazing for a $4 billion valuation. Let’s spot them a $100 million profit after revenues EBITDA (and that’s some massive depreciation expenses we’re not taking into account). Throw 10 X EBITDA for a site that’s going to have difficulty generating more revenue and that’s a $1 billion valuation, a 75% haircut.
But it gets worse. I estimate that advertisers are drastically overpaying for ads on facebook. I estimate the average facebook eCPM to be around $.40. I made this guess on 2 methods:
1. There are conflicting sources, but it seems facebook gets about 50 billion pageviews a month. At 600 billion pageviews a year, that would make the CPM $.475
2. Through facebook’s advertising method, your minimum CPM is $.10-$.15. There are generally about 3 ads per page, making the CPM at least $.40. Also, they seem to suggest a CPC of $.50-$.60 to get any amount of exposure. Even a horrible CTR of 1/1000 would make a CPM of $.50 or more.
What’s so bad about a $.47 CPM? Well, that’s extremely, extremely high for a bunch of college kids that are just shifting around blowing off time and not really paying attention to your untargeted ads. If Facebook had Adsense on the site, it’s eCPM would probably be $.02 (I say this based on having websites with traffic similar to facebook’s type of traffic). That’s about 20X overperformance.
If there’s one thing I’ve learned through this economic crisis, it’s how greatly inefficient the business world is. PPC and CPM advertising is often reliant on dumb advertisers overpaying. This often will occur on a fad website like facebook. As advertisers gradually realize how bad of an investment facebook advertising is, they will pull back and prices will fall. I certainly can’t see facebook sustaining this sort of advertising long-term.
And if Facebook is a buble, Twitter, which is just a bunch of 19 year olds talking about what they ate for lunch and complaining that it’s cold outside, can’t expect to make much revenue off of that sort of traffic.