Facebook Is Now Underhyped

It’s hip to diss Facebook these days:

  • CEO Mark Zuckerberg’s a naive control freak. 
  • The ad inventory is lousy
  • There’s no real business model
  • The new design sucks
  • They’re hemorraging cash
  • They’re running out of cash
  • They’ve searched the entire globe for cash
  • They can’t recruit anyone and employees are leaving in droves (because Mark Zuckerberg’s a naive control freak)
  • The valuation has plummeted from $15 billion to $2 billion
  • Crazy Mark Zuckerberg just rejected $200 million at an $8 billion valuation
  • Etc.

Fine.  Have your fun.  Mark and Facebook will keep laughing all the way to the bank.

In case you missed it, Facebook just blew past 300 million uniques.  It has 225 million active registered users.  Those active registered users don’t just dip in for a page a month like, say, many Yahoo users do.  They LIVE on Facebook.  Facebook left MySpace in the dust so long ago that it can’t even see it in the rearview mirror.  Facebook did $300-ish million in revenue last year, and it will do $400-$500 million ish this year, in the worst economy since the 1930s.

Yes, but isn’t CEO Mark Zuckerberg just a wacko naive control freak?

Unlikely.  He was sane enough to build one of the biggest web properties in history, for example.  He was smart enough to snooker Microsoft into injecting $250 million into the company at a $15 billion valuation just before the world ended.  He was smart enough to convince a bunch of other folks to do the same thing. 

But wasn’t Microsoft just dumb, desperate money in that deal?  And weren’t those other folks who invested at $15B just rich foreigners spending toilet-paper dollars?

Whatever.  Their money’s green.  And Mark banked it without having to give up more than a tiny fraction of his company.  Which leaves a lot more for him and his current investors and employees.

Yes, but didn’t Beacon BOMB? 

Sure, Beacon bombed.  But was worth a try.  Maybe they’ll get it right the next time.  (And if they do, boy, look out.  The single most powerful marketing tool on the planet is word of mouth from your friends.  If Facebook ever figures out how to leverage the social graph as a marketing engine, its revenue will go through the roof).

Yes but didn’t crazy Mark just reject $200 million at an $8 billion valuation because the investor wanted a board seat? 

No idea.  One source close to the situation tells us TechCrunch’s report on this is full of it.   The TechCrunch details–that one investor was willing to pay a $6 billion valuation and another was willing to pay $8 billion–doesn’t make sense to us, especially in light of other, lower valuation talk that has recently been reported. 

That said, it’s not inconceivable that someone would offer to pay an $8 billion valuation for Facebook.  This is preferred stock, remember–not common.  An investor who bought preferred at $8 billion would get its money back even if Facebook cratered from here.  And there might be other fancy terms like liquidation preferences that would make this valuation a great bet for the investor.  So nothing’s inconceivable about it.

But if Mark Zuckerberg did reject such an offer over a board seat, wouldn’t that prove that he’s a certified nut job?  Isn’t Facebook running out of money?

It doesn’t prove a thing.

Sure, it’s possible that Mark is a wacko naive control freak who just blew his last chance at salvation.  It’s possible–but unlikely.  If Mark were that crazy, we’d probably have heard some complaints from his VCs and others by now.  And Facebook wouldn’t have any senior executives left. 

So let’s move to the more likely scenario.

If TechCrunch’s report is accurate (which, in this case, we doubt), the most likely answer is that Facebook doesn’t really need the money.  

Would Facebook like the money?  Maybe.  Would the money give Facebook more flexibility?  Sure.  Would it take the money at the right price and on the right terms?  Why not?  But Facebook doesn’t need the money–at least, not enough to make even a small concession that Mark and the company don’t feel like making.  And there’s nothing naive or control-freaky about that.

Meanwhile, Facebook’s growth and potential is now officially underhyped.

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