GM Pulls $10 Million Facebook Ad Buy, IPO Doubts Loom

Posted by · May 16, 2012 10:59 am

GM Pulls Ad Buy, Facebook IPO DoubtsIs the Facebook IPO in trouble? Well, there’s really no simple answer to that question. After General Motors announced that it was bailing on a $10 million ad purchase citing low impact on consumers, questions have begun circulating about the wisdom of investing in the social network. Despite GM’s insistence that its decision had nothing to do with the “riskiness of the overall Facebook business model,” the question of whether advertising on Facebook is any better than traditional media has undoubtedly made its way to the forefront of the minds of potential investors.

Of course, that’s to be expected when the nation’s third largest advertiser backs away from a deal with a company that makes its billions on, well, advertising.

And now, with the onus on Facebook to prove to other advertisers that it is still a worthy investment for their ad budgets, many are wondering if they should invest in a company that is yet to develop a proven means of long-term profitability. The answer: It depends.

Watch this quick, one-minute video from the folks at Business Insider to understand what I mean:

So, if you aren’t worried about the uncertainty of Facebook’s future solvency, not to mention the potential that this is all part of another heavily inflated tech bubble, maybe it’s worth the investment. Heck, you might even be one of the lucky thousand who become Facebook millionaires overnight.

But then again, maybe you won’t.

So what do you think? Is Facebook really worth its $100-billion-plus valuation? Is it a good investment? Share your take in the comments below.

For more news on the Facebook IPO situation…

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  • Ok for those investors who think that the valuations make sense
    Get a GRIP your investing in a wish a dream someone’s speculation
    I’m so tired of millionaires becoming rich because of what it sure as heck not
    Their handwork it you it’s me it all of us they need to pay those millions to
    Tommrow it might be a company called let’sTalk and some programmer opens up a
    Simple chat site and millions like its layout and then a year later are they with this kind of money ate AMERICANS this dumb are we willing to be lead to water and made to drink
    Are we puppets , only going thru life with out thinking with out chalangeing this blind
    Unthought out existence ,are lambs led to the saluter the whole time being told how wonderful we are silent succulent subjects will to blindly spout out what ever the popular saying is that makes us feel richous are we this self serving egotistical race of idiots that have not one ounce of self respect to be able to stand up and say NO I won’t be sent down primrose lane and again and told all is well . I will take hold of my life and make more of it than what some one tells me I can , please make more of your self just because you can

    Like is far to short a time to waste it wishing

  • Jonathan

    There is no doubt Facebook on CURRENT performance is grossly overvalued. It’s earnings at $ 1 billion are minute compared to Apple’s $ 35 billion

    (From business Insider)
    At a $100 billion valuation–the expected IPO price–here’s what those multiples look like:

    2011 Earnings: $1 billion 2011 PE: 100X
    2012E Earnings: $1.7 billion 2012 PE: ~60X
    2013E Earnings: $2.5 billion 2013 PE: 40X

    For comparison, here are the multiples for another red-hot tech company, Apple:

    2011 EPS: $35 2011 PE: 16X
    2012E EPS: $44 2012 PE: 13X
    2013E EPS: $50 2013 PE: 11X

    There is however a very big ‘however’. Facebook’s hidden value is it’s collected data from 800 million users, one ninth of the globes total population, which will be used for data mining and sophisticated target marketing by most of the large companies in the world. It is NOT the ADVERTISING that is Facebook’s greatest asset and revenue earner, it is the collected data. Add to this the revenue potential from the skype acquisition and the valuation starts to look like a bargain.

    If a thousand companies like GM spend $10 million a year on data mining and target marketing using Facebook’s data, Facebook revenue jumps to $ 10 billion plus advertising plus skype. On these figures it is starting to look cheap.

    Just depends on your view of the future.