The National Inflation Association (NIA) announced Friday, Feb. 3, that it believes Facebook will likely start trading this May at a peak valuation of $100 billion and see its market capitalization and share price decrease in value in the years afterwards.
Facebook, NIA says, has successfully grown their monthly active users from 1 million in 2004, to 6 million in 2005, to 12 million in 2006, to 58 million in 2007, to 145 million in 2008, to 360 million in 2009, to 606 million in 2010, and to 845 million in 2011.
After achieving compound annual user growth from 2004 to 2010 of 191%, Facebook’s user growth in 2011 declined to only 39%. If Facebook begins trading with a market cap of $100 billion, Facebook will be trading for approximately 27 times 2011 revenue of $3.711 billion and approximately 150 times 2011 net income of $668 million.
According to NIA, a price/sales ratio of 27 and P/E ratio of 150 is too high of a premium to pay for a company that has just reached 50% market penetration in the U.S. Moving forward, NIA believes in 2012 we will likely see Facebook’s user growth decline to 20%, with its user growth declining to just 15% in year 2013 and 10% in year 2014.
It is unlikely that Facebook will ever be able to achieve the same market penetration in Europe that they have achieved in the U.S. Facebook needs to expand into the Chinese market, but the Chinese government has blocked off access to the social network.
In October of 2007, Microsoft invested $240 million into Facebook at a valuation of $15 billion. In January of 2011, Goldman Sachs’ international clients invested $1.5 billion into Facebook at a valuation of $50 billion.
While Microsoft is set to make a profit of 667% in 4 1/2 years and Goldman Sachs’ international clients are set to make a profit of 100% in just 1 1/2 years, NIA believes that the U.S. financial mainstream media that is currently hyping the Facebook IPO, is setting the general public up to get slaughtered on Facebook’s common stock.
The consumer social networking space has experienced very dramatic growth over the past few years, with Facebook being the dominant leader of the industry. Moving forward, NIA believes that social networking technology will soon begin to revolutionize the workplace in the same way that it changed the personal lives of millions of people around the world.
Recent college graduates, who experienced Facebook’s very dramatic growth first hand, are beginning to enter the workforce and are demanding that their employers adopt enterprise social networking technology at their place of employment.
The enterprise social networking industry is projected to grow 61% annually between now and 2016. Enterprise social networking is expected to grow from being a $600 million space in 2011 to a $6.4 billion space in 2016. This is similar to the type of growth seen in the consumer social networking space over the past four years.
Although Facebook is the dominant leader in the consumer social space today, there is a good chance that another consumer social company will grow to become larger than Facebook in the future.
Back in 2006, many analysts expected MySpace to remain king of consumer social networking forever and projected MySpace to continue rapidly growing indefinitely. Instead, Facebook surpassed MySpace and MySpace was recently sold by News Corp for 94% less than what they paid for it.
The American public needs to realize that Facebook at a valuation of $100 billion has far more downside risk than upside potential. While Facebook’s growth is going to rapidly decline in the years ahead, there are two publicly traded companies in the enterprise social networking space that are positioned for enormous revenue growth moving forward.
The user growth of these two companies could accelerate greatly in the years ahead as major corporations begin rapidly deploying their own enterprise social networks.
Today, the enterprise social networking industry is still in its infancy, but by 2016 it is likely that the majority of the largest corporations around the world will be using some type of enterprise social networking platform within their business, NIA believes.
The National Inflation Association (NIA) is an organization that is dedicated to preparing Americans for hyperinflation. It offers free membership at http://www.inflation.us and provides its members with articles about the U.S.economy and inflation, daily news stories, blog updates, and other information.