Dean Baker the 53 year old US macroeconomist and author of a weekly online commentary on economic reporting, questions the implied value of Facebook in its latest IPO (initial public offering) and whether the business is really worth that much money. Baker states “Facebook is going public… that is likely to place the market value of the company in the range of $100 billion. This price would put Facebook among the corporate giants in terms of market value… Some simple back of the envelope calculations show that Facebook would have to gain an enormous share of advertising expenditures over the next 5 to 10 years in order to generate the sort of profits needed to justify this current price… there have been numerous cases of companies becoming market darlings which were most definitely not worth the price. The best example of a failed market darling is probably the internet giant AOL, which had a peak market value of over $220bn in 2000. The price tag for AOL today is $1.8bn.”

 

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