ArabianMoney

Print this page
Banking & Finance Sign Up for free Newsletter

Facebook worth more than the entire silver market

Posted on 04 January 2011 with 6 comments from readers

The truly staggering valuation of $50 billion that Goldman Sachs has placed on Facebook, the Internet social networking website is significantly higher than the estimated $30 billion value of silver held in the vaults of the world.

Does this mean that Facebook is hugely overvalued in a tech stock bubble reminiscent of the 2000 crash? Or that silver is massively undervalued as a commodity that still trades for less than its all-time high 30 years ago? Or both?

Relative values

Valuation extremes are always worth comparing to gain a sense of perspective, for all value is actually relative value. Investors place great value on certain things at certain times and then something happens to change their opinion and money swings from one asset class to another.

The value of Facebook is in its success story, so ridiculously overhyped by a movie about the website. Those 500 million eye-balls are not open wallets and the tantalizing opportunity lies in this conversion. But as my father said many years ago, you should never pay for something that you can get for free, and Facebook’s legions of users are classic freeloaders.

Facebook is not without value, but maybe $1 billion, a tiny fraction of the Goldman price tag. Silver, on the other hand, may be undervalued by a similar factor.

It certainly used to be worth a lot more in the past. The long run gold-to-silver ratio is 12 compared with 46 today, so that gives you an upside multiple of almost four. Silver also rises alongside gold, so if gold goes up then silver moves higher too.

Supply shortage

But surely the main reason for thinking silver prices will go up enormously is precisely the $30 billion valuation put on all the silver in the entire world. That compares to $2 trillion worth of gold in bank vaults. There simply is not that much silver in stock to meet an acceleration in investment demand.

Presumably demand also has something to do with the Facebook valuation. And if that level of investment demand can be found for one website with a very questionable business model, then what happens when money from a crashing bond market comes hunting for a home in precious metals?

Yes the Facebook valuation is obviously absurd but so too is the current silver price (also see this article).

Posted on 04 January 2011 Categories: Banking & Finance, Gold & Silver, Media & Culture, Private Equity, US Stocks

6 Comments posted by readers:

Comment by obewon - 04 January 2011

The obvious answer is: BOTH.

Silver will continue to climb higher over the coming years, for reasons you’ve cited in this commentary.

FaceBook is Worth a Fraction of the GS Estimate:
I agree with this blog’s assessment; I also agree that the wallets of most Facebook subscribers are closed.

Over the past three years, GS has shown, time and time again, that whatever investments they recommend to the “general public” are good ones for GS, but bad ones for everyone else. GS has been pumping Facebook for a long time now, and they’ve been circumventing the SEC rules by getting their wealthy clients to buy into Facebook. The main issue is that Facebook isn’t a publicly traded company; yet their wealthy clients are falling all over themselves trying to “get in”. For more info on this, go here:
http://www.huffingtonpost.com/2011/01/04/goldman-sachs-facebook-deal_n_804040.html

Look for a ridiculously high priced IPO later this year; slowly and quietly, when GS sees that Facebook ain’t the big money machine that they advertised it could be, GS will pull their money out at a huge profit, while the common folk take it on the chin, again.

Comment by Andy - 04 January 2011

What is even more amazing than Facebook is the $300 Billion Dollar Market Capitalization of Apple.

http://www.macrumors.com/2011/01/03/apple-surpasses-300-billion-in-market-capitalization/

Iphone 4’s are selling so well that there still out of stock in Hong-Kong.

http://store.apple.com/hk/browse/home/shop_iphone/family/iphone?mco=OTY2ODA2OQ

Many people use Facebook on their Iphones in Asia and the US.

Comment by obewon - 05 January 2011

Clearly, Facebook has yet to prove that they can capitalize on their extremely large following. Time will tell.

Clearly, Apple has proven they can consistently produce quality products that the consumer wants.

Clearly, JPM et al, are engineering a massive sell-off in precious metals, and this sell-off may not ebb for a while. It’s interesting to note that JPM is now “firing on all cylinders” by trying to bring the news media into this sell off. For example, now even Bloomberg is talking the “JPM book”. JPM’s primary objective is to suppress the silver price down hard, by doing the following (including their “after-hours” illegal trades):

1. Selling a lot of their long positions in gold and in silver, each day this week (and maybe next week, too?), and
2. Simultaneously, buying short positions in gold and silver each day of this week, and then
3. Covering their massive short positions in silver.

I have to confess that they are doing a very good job of improving “their book.” At the same time, they are creating better opportunities for precious metals investors to buy!

Speaking of Apple, Here’s What Really Puzzles Me:
I’ve bot many PCs and electronic gadgets over the years; I recently bought a MacBook Pro for my wife, and a MacBook Air for myself. Very sweet indeed. What puzzles me is why the masses insist on buying PCs with the virus-prone, and marginally-effective MS operating system, rather than buying a quality Apple Mac whose security features are far superior, and whose performance will not degrade sharply over the ensuing year. However, Apple is still doing very well overall, and their Mac computers are selling very well, in spite of the fact that their market share is small.

Banks are Buying Apple Stock:
I suspect that one of the main reasons why Apple stock still holds a very high valuation (really, it’s much too high!!!) is because the banks in this country are getting free-money from the FED (via the daily POMO actions), and don’t know where else to put their new free-money.

Comment by philcu - 08 January 2011

Mmm why is $50B absurd? It is high but not absurd. Stock valuation of the hottest IT companies almost always surprise to the upside.

The revenues do not come from the end users but from advertisers. That is why Google is worth $200B. Everyone knows this story. First you get the eyeballs, then the money follows. When you have half a billion pairs of eyeballs, that is a LOT of revenue potential.

Current revenues are about $2B. Many project this will rise to $30B or so in the next few years.

The possible downside can be expressed in one word: “Myspace”

Comment by Richard Stooker - 20 January 2011

Facebook is supplying tremendous value to many people around the world. I myself don’t have time to spend there, but I know that many people, from upper class Americans to poor Filinos do enjoy posting their personal notes, sharing pictures and playing games.

They spend as much money as anybody else in their demographic. It may not be directly on FB, but they’ll react as much to ads there as on other sites.

Their pay per click ads, thanks to allowing advertisers to target by demographics and interests, have the potential to take business from Google’s Adwords, which is Google’s primary source of income. As Google terminates Adwords accounts by the 1000s, they already have attracted a lot of that revenue.

Silver makes for beautiful jewelry, cavity fillings and has useful industrial applications.

Both provide value that customers bond with emotionally.

FB’s main story is still its growth potential. And of course that is always dangerous for investors to buy into.

Comment by obewon - 28 January 2011

Update, as of 28Jan:

Here’s an update on what Facebook may eventually be worth.
http://www.bloomberg.com/news/2011-01-27/facebook-overvalued-at-50-billion-in-global-poll-of-investors.html

The most interesting, and most accurate statement in that Bloomberg article is this:
“There’s too little financial information and track history to value the company like this,” says La Ferla. ‘Besides, you do not want to buy any of Goldman’s proprietary positions that they’re willing to sell.”

Add your comment on this article:

Post your comment >

Free Newsletter: