I can't wrap my head around the value placed on Facebook. I read an article from the AP that made the following statements.
>By the afternoon, the stock was trading flat at around $38. That means Facebook is worth about $104 billion, more than Amazon.com, McDonalds and storied Silicon Valley icons Hewlett-Packard and Cisco.
>In all of 2011, it earned $1 billion.
>It had net income of $205 million in the first three months of 2012, on revenue of $1.06 billion
So last year the company made $1 billion and they are now valued at $104 billion. That's more than 100X what they made last year. That means that if a person bought the entire company and it continued earning the amount of money that it's earning now they would make less than a 1% return on their investment. My credit union pays me a higher interest rate than that on money in my savings account.
The only way to "justify" a price like that is if you are basing the value on a speculation of what the company is going to be worth in the future. In my opinion that is not a good way to make sound investments. A good investment makes a purchase at the current value for something that you think is going to increase in value in the future. If you buy it at its speculated future value then even if it performs to your expectations it will only be worth what you paid for it and you will have made nothing. At that point you can do one of two things; You can try to sell it to someone else and hope that they are willing to pay an even higher speculative price or you can hold onto it, hope it increases further still and make a profit from there on out. However, from the time of your purchase until the point where the asset increases in value to be worth what you paid for it you will have made nothing. Why would you do that? The answer is that you wouldn't unless you don't know much about investing. For that reason, I think Facebook is going to go down in value in the future. I think the value of the company is way overpriced at this point because of the popularity of the company and the willingness of unseasoned investors to purchase shares. I think once that novelty wears thin the trading price of the stock is going to nosedive.
Companies just aren't worth 100X what they make in a year, period.
