Does anyone think Facebook will grow at 90% earnings annually to support this valuation? I just don’t think that’s likely.
More to the point, however, Facebook’s actual business model has always felt muddy to me. It’s all about leveraging eyeballs. It’s effectively an advertising platform, and I ignore the advertisements. I imagine most people do. I wonder how long it’ll be before advertisers realize this.
Of course, if you’re looking for a more concrete fault on the advertising side, how about the fact that it’s reaching critical mass? Its CFO has expressed concerns about how many ads Facebook can run without really peeving its users.
Then there’s the lingering issue of whether Facebook will be the social media tool of choice for the long haul. Remember MySpace?
Too many questions here to support a forward P/E of more than 40.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at email@example.com and follow his tweets @ichabodscranium.