Facebook being abandoned by its core market. You'd be better off investing in Greek government bonds [View all]

[JohnyCanuck]

The reason why MySpace died was simple: its users migrated to Facebook, which had a cleaner user interface and fewer adverts. But where MySpace was, at its peak, valued at half a billion dollars, now we are told that its successor is worth 200 times as much. In its initial public offering (IPO), which is happening today, the firm is expected to be valued at $104 billion. One Hundred And Four Billion Dollars.

That's nuts, but let's just explain why. Ordinarily, an investor would hope to earn at least 5 per cent on an investment – ideally more, since historically, you can earn that just buying Government bonds. So for a company to be worth $104 billion, you would hope for at least $5 billion a year of profit. Really, to justify the risk of owning shares, you'd want more – $10 billion perhaps. Every year. Forever.

But Facebook's revenue is currently just $3.7 billion, and its profit is around $500 million. So the website is making less than one tenth of the profit you would hope it to earn in the long run. By contrast, Google earns 10 times as much revenue – $37 billion – and 20 times as much profit, and yet is only valued at around $200 billion.

snip

My friends barely use Facebook either. When I was a student, I used to log in approximately every ten minutes. If you said "Facebook break", everyone knew what you meant. When I logged in, I could guarantee a stream of amusing "banter" and gossip, as links and pictures were shared. Now, I log in, and it's a wasteland. Almost all the links I click on and the online running conversation I have has migrated to Twitter, which I check religiously. So too have all the most prolific Facebook users I used to know. While we probably still count as "regular users", for more and more of my generation, Facebook is little more than an electronic address book. That's why big advertisers, like GM, are reducing their spend on the company.

http://blogs.telegraph.co.uk/news/danielknowles/100159144/100159144/