Monday, June 11, 2012

Facebook's growth (or lack thereof).

According to a recent article in the Wall Street Journal, the growth rate of Facebook is slowing quite dramatically.  This is quite normal for large companies - as when they get really big it just becomes a lot harder to grow at a fast rate.  In fact apparently 71% of all internet users in the USA are already on Facebook - so any further growth here either has to come from trying to persuade the other 29% to get on board, or to get the current users to click on more ads.

For Facebook this matters a lot.   FB's PE is around 70 compared to Google's which is around 17.  For FB to have the same valuation as GOOG, it will need to more than quadruple its earnings, or see its stock price drop to single digits.   My guess is that the end result will be somewhere in the middle.