Posts Tagged ‘MySpace’

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Dotcom bubble: what madness? How could anyone have been so stupid not to have seen it coming? And then it happened again, a company with a p/e ratio off the charts, a track record going back just a few years, founded by a person/persons so young they looked as though they should still be at school, and yet they queued up to buy shares on flotation. How stupid was that? It is just that it may not have been so stupid after all.

Replace the word Facebook with the word Google and things look much the same, except we can now look back with the benefit of hindsight, and say that Google was cheap when it was floated. It is just beginning to look as though Facebook was cheap too.

The latest result from Facebook told an impressive tale. Sales were up 53 per cent in the latest quarter, profits were up by… well …numbers can’t tell us, because the company went from losing $157 million in the equivalent quarter last year, to making $333 million profit this time around.

Now look at the company’s valuation. Its market cap is $83 billion. Turnover was $1.81 billion in the latest quarter. That is still quite a multiple. Just bear in mind, however that on flotation the p/e was… well, as the company was making a loss at the time, it was infinite.

Now consider a story doing the rounds a couple of months ago. The ‘Guardian’ in particular made a lot of noise about it. It cited research from SocialBakers indicating that the company had lost four million users in the US in just one month. It was a real ‘woe is Facebook’ story; proof, or so many said, that the company was full of naïve hope over reason. It is just that SocialBakers reacted to the ‘Guardian’ story saying: “Sometimes, journalists get stats wrong.

The Facebook stats found on our page are not primarily intended for journalists, but rather Ad estimates for marketers.” It added: “Around 50 per cent of the UK’s entire population is on Facebook – which is amazing!” and suggested: “The bottom line here is that there is no story.”

Jan Rezab, CEO at SocialBakers, said: “We previously published a clarification to one of The Guardian’s articles three months ago. In this article, I explained the stats in question, revealed the source of the stats, and admonished journalists against jumping to conclusions about them going forward. Well, The Guardian did not heed the advice, jumping to an even bigger conclusion this time.”

And that in a nut shell says it all. No one can really know for sure whether Facebook is worth its current value, but to laugh it off is not wise. It is fun to suggest companies such as Facebook are made of little more than smoke and mirrors, but little things like facts are rarely allowed to get in the way of a good story or indeed a bit of fun.

Take the argument that Facebook can’t make money from mobile advertising. In the latest quarter mobile advertising made up 41 per cent of the company’s ad revenue.

Consider the story of Google. Its share price has risen from around $100 in 2004 when it was floated to around $900. Yet during this time, its p/e ratio has crashed, so that now it is around 26 – still highish, but nothing spectacular. At flotation, Google’s market cap was around $23 billion, now it is making more than that in profits in less than a year.

Facebook has another similarity with Google. Back in the mid noughties, soon after Google was launched, its Ad Words program represented perhaps the most cost effective form of advertising ever invented. The markets did not get that, which is why they undervalued the company. It is not like that now for Ad Words, of course; the auctioning process has seen to that.
Today it is Facebook that seems to represent an incredibly cost effective advertising medium.

This is why its revenue will probably continue to grow at a very rapid rate for some time, and profits to revenue will probably grow too, meaning that total profits may yet grow at a rate that dwarfs even the growth enjoyed by Google during its golden period.

No one can say for how long Facebook will occupy such a high proportion of the world’s consumers’ time? It may or may not go the way of MySpace, but based on current popularity the potential for the company to increase profits is enormous.

© Investment & Business News 2013

Poor old Rupert Murdoch – his purchase of Myspace was not exactly one of his best moments and maybe he is still puzzling why. At least that may explain his tweet last week.

He tweeted: “Look out Facebook. Hours spent participating per member seriously dropped. It was the first really bad sign seen by MySpace years ago.”

Now Mr Murdoch has voiced doubts about Facebook, it may be worth asking: why and why not?

As for why, we have two reasons. Firstly, it kind of fits with the Myspace experience. After all, the social media site once seemed unbeatable. Is it not logical that Facebook, after flying too close to the sun will find the wax holding its feathers together will melt and it will crash, just like Myspace did? Secondly, data out last week revealed that Facebook is losing users.

As for why not, firstly, yes, it is true that Facebook is losing users from its website, but it is gaining them on its apps. Secondly, Facebook is not Myspace in a profound way. The Internet is all about cooperation, about different services dovetailing with others. Facebook is good at this dovetailing and Myspace wasn’t. Then again, Mr Murdoch’s media empire is not one for dovetailing either.

Mr Murdoch was late to embrace the Internet and when he did, he only half did. For example, the ‘Times’ isn’t really on Google. The ‘Financial Times’ charges for its content too, but at least it is fully immersed into search engines. It is perhaps a subtle point but one that seems at odds with the Murdoch ethos.

Facebook has locked its users in in a way that Myspace never did, meaning that it benefits from high barriers to exit. Oh, and one more thing, it is learning how to monetise its massive user base too.

© Investment & Business News 2013

Sometimes stories are too good not to tell, and little things like facts must never be allowed to stand in the way of their telling.
Take Facebook. The ‘Guardian’ broke the story yesterday, and the bandwagon got moving in its wake.

“In the last month, the world’s largest social network has lost 6m US visitors, a 4 per cent fall, according to analysis firm SocialBakers,” said the ‘Guardian’ and added: “In the UK, 1.4m fewer users checked in last month, a fall of 4.5 per cent. The declines are sustained. In the last six months, Facebook has lost nearly 9m monthly visitors in the US and 2m in the UK.”

The piece continued: “Users are also switching off in Canada, Spain, France, Germany and Japan, where Facebook has some of its biggest followings. A spokeswoman for Facebook declined to comment.”

It also quoted Ian Maude at Enders Analysis who said: “The problem is that, in the US and UK, most people who want to sign up for Facebook have already done it…There is a boredom factor where people like to try something new.” See: Facebook deserted by millions of users in biggest markets 

Is Facebook set to go the way of MySpace – from unbeatable to beaten in just a few months?

Many jumped on the ‘Guardian’ article and concluded that this was so. It was an easy sell. The world is full of social media cynics, who see bubble writ large. And to those who say: “But Facebook is so wonderful,” they laugh and say sarcastically: “This time it is different.”

It is just that SocialBakers, the very people who the ‘Guardian’ cited in its article, see it differently – very differently, in fact.

“Sometimes, journalists get stats wrong,” it said. “The Facebook stats found on our page are not primarily intended for journalists, but rather Ad estimates for marketers,” it stated in its web site,. And added: “We previously published a clarification to one of The Guardian’s articles three months ago (read more in Clarification to ‘Guardian’ on Facebook losing UK users). In this article, I explained the stats in question, revealed the source of the stats, and admonished journalists against jumping to conclusions about them going forward.”

Jan Rezab, CEO at SocialBakers, said: “The Guardian did not heed the advice, jumping to an even bigger conclusion this time.” He added: “We state, quite clearly, on our site that these figures are rough estimates and cannot be used to determine Facebook traffic. Again, we explained this to The Guardian when they published a similar story some months ago.”

He then pointed out that “around 50 per cent of the UK’s entire population is on Facebook.” This, he said, “is amazing!”

There are two stories here. Story one: how myths can grow when they tell a story that appeals to the imagination; how there is a deficit between facts and what you read in the newspaper, even venerable newspapers such as the ‘Guardian’ – let alone the more ‘all migrants are evil’ type of newspaper. The other story relates to Facebook.

This company now has a very subtle but important benefit. Its unique selling point relates not so much to the size of its user base, but the network that describes how its users interact with each other. Network theory is a burgeoning, poorly understood, but very important field of study. See: Network theory and science

One thing network theory does tell us is that networks are often very robust, and very hard indeed to destroy. To illustrate the point, the Internet itself was designed in the way it is to be impervious to nuclear war. Al-Qaeda survived the death of Osama bin Laden, and it is devilishly difficult to change someone’s mind, because the sets of arguments that create a belief can be represented by a network.

Disruptive technology, in which new technology changes the face of social media, may spell curtains for Facebook, but until something new comes along, it remains in a very strong position, and a position it is now learning how to make money from too.

© Investment & Business News 2013