I have a bit of a problem accepting one of the arguments in this article (under the heading "Is There a Bubble?").
The author seems to be arguing that if you look at the actual and projected growth rate for both Instagram and OMGPOP (measured in number of account signups) as a percentage of the userbase of their suitors (i.e. Facebook and Zynga respectively), then the money paid for these companies represents "EXCELLENT" value.
To me that is an absolute fallacy. OMGPOP was going for 6 odd years and almost out of cash before they stumbled upon something that worked. Draw Something caught on like wildfire but the buzz will eventually die. What comes after it? i.e. how does past performance guarantee future performance (especially given the majority of past performance wasn't great)?
Similarly, Instagram has caught on like wildfire but even the CEO admitted that they have no way to monetize the user interest. So what we have is a freebie product that people love to use to send photos and an accompanying strap line of text. Yes it's cool but it isn't curing cancer and the users are using it as a fun throwaway service. They have no loyalty to Instagram and would drop it in a heartbeat if a charge was attached to using it.
So, where is the inherent "value" in all of these user accounts & signups? Having millions of user's doesn't automatically translate to a long term money printing machine like Apple or Google.
You can apply this argument to Zynga and Facebook themselves. Facebook has 800 million users but its total yearly revenue is half of Google's annual profits (according the wikipedia entries). Zynga IPO'd at $10 a share. Almost 6 months later and the share price hasn't moved. That doesn't look like explosive growth to me.
Given all of the above it really does feel like a bubble (at least to me). All the valuations seem to be based on a house of cards...
P.S. It's 1am where I am and I'm not an econ or finance guy so if my assumptions or arguments above are wrong , I'd love to have it explained to me rather than being flamed to death :)
The author seems to be arguing that if you look at the actual and projected growth rate for both Instagram and OMGPOP (measured in number of account signups) as a percentage of the userbase of their suitors (i.e. Facebook and Zynga respectively), then the money paid for these companies represents "EXCELLENT" value.
To me that is an absolute fallacy. OMGPOP was going for 6 odd years and almost out of cash before they stumbled upon something that worked. Draw Something caught on like wildfire but the buzz will eventually die. What comes after it? i.e. how does past performance guarantee future performance (especially given the majority of past performance wasn't great)?
Similarly, Instagram has caught on like wildfire but even the CEO admitted that they have no way to monetize the user interest. So what we have is a freebie product that people love to use to send photos and an accompanying strap line of text. Yes it's cool but it isn't curing cancer and the users are using it as a fun throwaway service. They have no loyalty to Instagram and would drop it in a heartbeat if a charge was attached to using it.
So, where is the inherent "value" in all of these user accounts & signups? Having millions of user's doesn't automatically translate to a long term money printing machine like Apple or Google.
You can apply this argument to Zynga and Facebook themselves. Facebook has 800 million users but its total yearly revenue is half of Google's annual profits (according the wikipedia entries). Zynga IPO'd at $10 a share. Almost 6 months later and the share price hasn't moved. That doesn't look like explosive growth to me.
Given all of the above it really does feel like a bubble (at least to me). All the valuations seem to be based on a house of cards...
P.S. It's 1am where I am and I'm not an econ or finance guy so if my assumptions or arguments above are wrong , I'd love to have it explained to me rather than being flamed to death :)