The recent deal where Microsoft took a 1.6% stake in Facebook for $US240 Million valued the company at $US15 Billion.
Here’s some numbers:
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Facebook has a revenue of approx $100m per annum.
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Although profit is currently undisclosed, even a generous 50% profit on sales margin would result in a diminutive profit of $50 million.
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This would result in a PE ratio of 300 times!
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Which means, it will take Microsoft 300 years to pay back their investment.
Start up blog view: This could be the most ridiculous sale price anyone has ever paid for a company.
Has everyone forgotten about these start up web 1.0 heroes of the late 1990’s and early 2000’s:
kozmo.com
Global crossing
Worldcom
govWorks.com
eToys
Boo.com
Pets.com
theGlobe.com
Where Investment banks and reputable companies such as Microsoft paid exorbitant prices for many now non-existent companies with zillions of page views, sessions and ‘potential’?
It’s different this time, right?
At some point in our journey we all have to value a business. So we must remember the following:
When selling: Potential, emotion and short memories can get you a great price
When buying: Forget ‘potential’ and focus on ‘current’ earnings and investment payback period.
Bonus conspiracy theory: Microsoft really bought the personal information of the 42 million active Facebook members.
will Microsoft be around in 300 years???
I like your list of forgoten start-ups. It’s not so dissimilar in the bricks and mortar world, really. I don’t know how many restaurants and retail outlets I’ve seen come and go with a mike of my place.
But the sums of money are quite different, I guess