As Facebook is floated on the stock exchange today investors would do well to remember the dot com bubble of the late 90’s? Most folk will probably have forgotten by now if they even took notice in the first place, although those who had a few bob invested when these inflated stocks crashed will no doubt remember very well.
For those who don’t remember this massive con it was based around technology stocks on the NASDAQ exchange, where internet based companies were hyped beyond recognition due to the growing popularity of the internet and the recognition of the internet as the future market place.
This wasn’t entirely false, despite suffering massive losses in the dot com crash of 2000, companies such as Amazon and Ebay bounced back very quickly because their essential business premise was a solid one. Ebay in particular was always going to be a success because it allows sellers to offload junk they don’t need to a public with an addiction for buying junk. Americans spent $200 billion on-line in 2011 and the British spent around $70 billion.
However many others went under completely wiping eventually wiping out around $5 trillion in value by 2002. One of the more notorious cases was that of last minute.com, valued by the London Stock Exchange at £571 million in March 2000 despite only turning over £195k in 1999. On the first day prices rose to give a valuation of £768 million at 511p per share but less than three weeks later the share price had dropped to 190pence. By November of that year the price had sunk still further to 80p per share valuing the company at around £120 million. Between 2000 and 2005 it failed to make a profit and prior to its flotation on the LSE it only did so through false accounting practises.
Mark Zuckerberg - Just a frontman according to broadcaster Alan Watt.
The importance of this story shouldn’t be ignored by those considering the latest dot com miracle known as Facebook, the social networking site. Here we have again another internet based technology company hyping itself beyond recognition with a whole cast of characters backing it up including rock star Bono.
The front man for Facebook is Mark Zuckerberg, a Jewish lad from New York, who we’re told came up with the idea in his bedroom and developed it with the help of a few techy friends including computer hacker Sean Parker.
Currently valued at $65 billion, Facebook has been admittedly a phenomenal success with mainly the MTV generation but where do these valuations come from? According to Zuckerberg and his acolytes the value is in the database of names which can be harnessed for marketing purposes. That means somebody selling cosmetics can target females of a certain age and income bracket or somebody selling computer games could target gaming addicts.
The problem is that a lot of the data on Facebook is contaminated. People, including myself, have established a lot of fake profiles with false data , not only to maintain privacy but also to create a fantasy vision of ourselves, the sort of person we would like to be if our circumstances allowed.
This means that a lot of the marketing data on Facebook is false and so potential advertisers risk losing a lot of money on misdirected advertising campaigns by targeting people on Facebook who simply don’t exist in reality. Once that realisation sets in, probably fairly quickly, then you will see the value of Facebook fall through the floor as profits fail to reflect the hyped up stock market valuation.
The victims as always will be those sapling investors suckered in by the media hype, the big names and simple greed, hoping to cash in on what they hope will be an investment vehicle capable of bucking the trend in a bear market. Meanwhile I predict that Zuckerberg and his cronies behind the scenes, the faceless creators of this massive scam, will be dumping what remains of their stock fairly quickly. It’s the oldest trick in the Facebook!
Rae Merrill
