Dot.Com Fever, Part II?
Karl Denninger has an interesting post about Facebook receiving $500 million in cash for part ownership in the company. I'm not as negative on the company as Karl is, because they have several streams of revenue (games and applications such as Farmville), in addition to ads they sell on a per-click or CPM (per thousand views) basis.
He poses a good question about how good an investment Facebook really is, when it's a privately-held company that doesn't release its financial results: If the company is doing so well, why did they take the $500 million from Goldman Sachs and the Russian investor?
In September 2009, Facebook announced they were cash flow positive, which is good. The next question savvy investors should ask: "Is Facebook STILL cash flow positive?"
Time will tell how good a financial investment Facebook will be. I do like it better than the over-hyped Twitter for a number of reasons. Before I list those reasons, in fairness, I will give the positive side of this social media site: Twitter (if used correctly) can help you build a marketing list, and broadcast your marketing message to a large audience.
However, too many business owners seem to think that Twitter is a business "cure-all" that will cover up a flawed business model, or a bad product or service. You have to "tweet" and "re-tweet" your messages multiple times to get people's attention.
If any of your followers follow more than several hundred people, it's pretty easy to get lost in the shuffle. And to send these multiple messages daily, it takes valuable time that may be better spent on other tasks or marketing media.
Facebook is easier to navigate, allows more conversations and interactivity between users than the Re-Tweets on Twitter. 160 characters just isn't enough to have a decent conversation.
And I hated all the hype about Twitter, because anytime something is hyped up so much... it can almost never live up to that hype, and most of the time, the underlying fundamentals aren't that impressive.
When looking at a business to invest in as a shareholder or owner, you need to ask difficult questions to make sure you're making a wise purchase.
And when a supposedly intelligent business owner says something stupid, I won't hesitate to criticize them for it. Last November, one of Twitter's co-founders announced they were "exploring different business models."
Huh?!
OK... call me crazy, but shouldn't you decide on a business model before you start the company? I believe Mark Twain said: "History doesn't repeat itself, but it often rhymes." These business tunes sound a lot like the "one-hit wonders" of the late '90s dot.com era, when people were buying stocks of companies who had never made a dollar of profit - much less had a realistic, viable business model.
Twitter also raised $200 million in new funding, along with the $100 million in venture capital that T. Rowe Price and other investors ponied up in 2009.
Along with Twitter, we're seeing companies like Four Square raise venture capital - just like the dot.com days. It raised $20 million last June, and the investing company claimed that Four Square was worth $95 million.
Opinions on company valuations are a dime-a-dozen, and I don't believe these estimates are based on any solid financial or accounting data.
It seems like venture capital firms and Wall Street want to blow up another investment bubble to cash in on, and investors want to get in on "the next big thing." And both want to see some signs of growth and good news in the economy.
If you've spent any time on Facebook or Twitter, and connected with family, friends or business contacts, there are intangible benefits you receive from interacting on these sites. Such as re-connected with old friends and family - and sometimes the tangible benefits of finding a new client, or making a sale.
But for investors who want to put their hard-earned money into Facebook, Twitter or similar companies, and expecting a great return on that money - remember this: Caveat Emptor, or "buyer beware."
He poses a good question about how good an investment Facebook really is, when it's a privately-held company that doesn't release its financial results: If the company is doing so well, why did they take the $500 million from Goldman Sachs and the Russian investor?
In September 2009, Facebook announced they were cash flow positive, which is good. The next question savvy investors should ask: "Is Facebook STILL cash flow positive?"
Time will tell how good a financial investment Facebook will be. I do like it better than the over-hyped Twitter for a number of reasons. Before I list those reasons, in fairness, I will give the positive side of this social media site: Twitter (if used correctly) can help you build a marketing list, and broadcast your marketing message to a large audience.
However, too many business owners seem to think that Twitter is a business "cure-all" that will cover up a flawed business model, or a bad product or service. You have to "tweet" and "re-tweet" your messages multiple times to get people's attention.
If any of your followers follow more than several hundred people, it's pretty easy to get lost in the shuffle. And to send these multiple messages daily, it takes valuable time that may be better spent on other tasks or marketing media.
Facebook is easier to navigate, allows more conversations and interactivity between users than the Re-Tweets on Twitter. 160 characters just isn't enough to have a decent conversation.
And I hated all the hype about Twitter, because anytime something is hyped up so much... it can almost never live up to that hype, and most of the time, the underlying fundamentals aren't that impressive.
When looking at a business to invest in as a shareholder or owner, you need to ask difficult questions to make sure you're making a wise purchase.
And when a supposedly intelligent business owner says something stupid, I won't hesitate to criticize them for it. Last November, one of Twitter's co-founders announced they were "exploring different business models."
Huh?!
OK... call me crazy, but shouldn't you decide on a business model before you start the company? I believe Mark Twain said: "History doesn't repeat itself, but it often rhymes." These business tunes sound a lot like the "one-hit wonders" of the late '90s dot.com era, when people were buying stocks of companies who had never made a dollar of profit - much less had a realistic, viable business model.
Twitter also raised $200 million in new funding, along with the $100 million in venture capital that T. Rowe Price and other investors ponied up in 2009.
Along with Twitter, we're seeing companies like Four Square raise venture capital - just like the dot.com days. It raised $20 million last June, and the investing company claimed that Four Square was worth $95 million.
Opinions on company valuations are a dime-a-dozen, and I don't believe these estimates are based on any solid financial or accounting data.
It seems like venture capital firms and Wall Street want to blow up another investment bubble to cash in on, and investors want to get in on "the next big thing." And both want to see some signs of growth and good news in the economy.
If you've spent any time on Facebook or Twitter, and connected with family, friends or business contacts, there are intangible benefits you receive from interacting on these sites. Such as re-connected with old friends and family - and sometimes the tangible benefits of finding a new client, or making a sale.
But for investors who want to put their hard-earned money into Facebook, Twitter or similar companies, and expecting a great return on that money - remember this: Caveat Emptor, or "buyer beware."
posted by Brian Ochsner | 4:07 PM
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