Posted by: conservativecritic | May 24, 2012


A report from Indigo Equity Research is comparing Facebook Inc (NASDAQ:FB) to Yahoo! Inc. (NASDAQ:YHOO) in terms of its valuation and its potential for future growth. The report is the most recent of several pieces of research that have been released in the wake of Facebook’s IPO. The firm’s offering has been viewed as a complete disaster by many commentators and the stock has already lost much of its value.

Facebook co-founder and CEO Mark Zuckerberg was publicly chastised for wearing jeans and a hoodie [to meet] Wall Street investors. His casual appearance left some wondering whether [he] had the maturity to run a major public company.

In a profile of the company opening the report Facebook Inc (NASDAQ:FB) is referred to as Yahoo! in disguise. Yahoo! in 1999 is used as the perfect tool for modelling Facebook’s growth.  The comparison is based on the domination of a founder and CEO, the reliance on display ads for revenue, an uncertain business model and high valuation. The most thrilling parallel between the two companies is the failure to evolve as the internet does. That part of the comparison is the most likely to shake investors.

The report supports that allegation by pointing to the lack of revenue the company takes in from mobile devices. Facebook’s interface is still dominated by PC thinking as the world switches over to mobile dominated computing. This poses great problems for Facebook, and their attempts to solve it have been less than impressive. The company took over a year to release an iPad app and when they did it was panned by users for containing many bugs and not having the level of desired usability.

Facebook’s user base is not growing as quickly as it once did. The company is valued extremely highly. In these circumstances, to get revenues  to reach expected levels in a given time period the company has to increase average revenue per user (ARPU). How the company plans to do this appears to be a mystery. Although they are likely to increase it to some degree the magnitude required is enormous.

Facebook’s valuation is based on a great deal of high expectations rather than actual value at the company. Those expectations are so high that an upside looks completely insignificant compared to the downside risk. Facebook could crash based on one bad report on user numbers.  (SOUNDS EXACTLY LIKE OBAMA GETTING THE NOBEL PEACE PRIZE FOR “ANTICIPATED RESULTS”!!)

[N]one of this should come as a surprise. … Since its origin in a Harvard dorm room…the company has been dogged by…people who felt tricked and ill-treated by CEO and cofounder Mark Zuckerberg.

[A]llegations that Zuckerberg had stolen the idea for Facebook…[who] an instant-message exchange from that time…said of the guys who had hired him, “I’m going to **** them.”

[R]eports that…Zuckerberg had hacked into the private email of reporters…and had hacked into the rival social network created by the guys he’d threatened to “****.”

Then there emerged an IM string…in which Zuckerberg offered to give a pal access to private information that Facebook was collecting from [early users], saying, “They ‘trust me.’ Dumb ****s.”

[Cofounder] Eduardo Saverin, sued Zuckerberg claiming he’d been defrauded. … Later, emails emerged revealing that Zuckerberg asked…if there’s “a way to do this without making it painfully apparent to him.”

The larger picture is that a powerful company…collecting more information about more people than any [other]…is in the control of a…man who has a history of being, well, less than forthright.



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