Want a piece of Facebook? The social networking behemoth
has finally announced that it is going public – on 18 May – and its
proposed share price values the company at between $77 billion and
$96 billion. "Econophysicists", however, say the company will be subject
to a stock price bubble and is vastly overvalued.
Peter Cauwels and Didier Sornette, entrepreneurial risk analysts at the Swiss Federal Institute of Technology Zurich,
say that financial institutions do not publish the methods they use for
valuing social networking companies. So Cauwels and Sornette developed
their own model, which they have made publicly available (arxiv.org/abs/1110.1319).
The model suggests that even with the
most optimistic growth forecasts, Facebook's fundamental value is no
more than $30 billion. Cauwels says that the company's unique status as
the biggest social networking start-up gives it extra potential, worth
perhaps another $30 billion. "Investors should be aware that everything
they pay above $30 billion is just an option on future potential and
everything above $60 billion is bubble money," he says.
Much of the excitement is based on
Facebook's meteoric rise – the company has gained new users at an
exponential rate since its launch in 2004. But Sornette and Cauwels say
there are signs that its growth is slowing, and that the next generation
is starting to think that Facebook is boring. "It's something their
parents are using," says Cauwels.
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