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Dot.com bust

Jan. 05, 2011 10:10 AM ET
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 On January 4th a few hours were devoted on both CNBC and Bloomberg to discuss the valuation of Facebook and it was overkill.  . How can revenue be used as a means to evaluate a company when the BREAKEVEN revenue is not known. If the company is incurring loss every year and its revenue is increasing every year at a gigantic (remember 100% increase from a low point is still a low revenue)  rate it could be a big fad and if a huge value is assigned by multiplying the revenue with a large number you are starting the DOT.Comm bust. We could never start another dot.com bust. . Goldman Sachs may be enforcing the proverb that beauty is in the eye of beholder but society should test such action when it comes to encouraging mushrooming of facebook style organizations, all aiming at Quickbuck- and CNBC and Bloomberg should ration their precious broadcasting time to discuss the merit of the topic if Facebook is worth $50b.  After all is said and done somebody has to buy Facebook for the value assigned to Facebook by GS, the buyer would certify the value and not the media blitz by GS about its value. . And in this context how did Mr. Z get hold of the billions to be able to contribute to Newark, NJ? Mr. Z has to sell his share to realize any gain from Facebook. . Facebook is in need of capital and it means that the capital coming in would be used either for expansion (to be profitable) or to pay dividends to shareholders (less than 400). This need of capital should raise eyebrow as it means the company does not have Free Cash of even $500 m for its corporate use. . Anyhow, it is time to get ready for another dot.com bust.   

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