Thursday, February 2, 2012

Ddulite Investors -- IPO editon

I think it's possible that the romance of technology may be influencing some of these investors (From NPR's All Things Considered):

BLOCK: Now, we mentioned those 800 million Facebook users. A lot of people will be wondering in the papers today, do we get a sense of how profitable this company is?

HENN: Well, they had close to $4 billion in revenue, and they have very healthy margins. So, you know, that's a lot of money. But if Wall Street ends up valuing the company at something close to $100 billion, it will still make Facebook an extremely expensive company to invest in. Anant Sundaram is a professor at Dartmouth's Tuck School of Business.

DR. ANANT SUNDARAM: If I was a long-term investor thinking of this as a potential investment opportunity, I would hesitate.

HENN: Sundaram says to justify its price of Facebook shares that Facebook will sell at, it would need to grow at something like 30 percent a year for the next 10 years. And for today's investors to actually make money, it would have to grow faster than that. So to justify these kinds of valuations, Sundaram says Facebook and Google together would need to control something like a quarter of the entire global advertising market by the end of the next decade. So is that possible? Maybe. But he doesn't think it's likely.

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