Social Media, Valuation | featured news

Foursquare is having troubles convincing investors that its valuation shouldn't shrink, a sign of a cooling toward social media startups in the wake of Facebook's messy initial public offering.

Facebook shares scraped a new low
Tuesday. The new drag on the already leaden stock:
Analysts from two of Facebook’s largest
underwriters on its botched initial public
stock offering cut their price targets.

Pinterest, which allows users to share photographs, recipes and other media on custom "pinboards," raised $100 million in a funding round led by the Japanese e-commerce company Rakuten.

How to put all this into a Facebook valuation? To justify the big numbers being tossed around – $100bn and up – several things must happen in the next five to seven years. The business needs to become much less capital intensive (inclusive of acquisitions) over time, as Google and Microsoft have done. That is the easy part. But margins must also stay near today’s level of about 50 per cent – which would be uncharted territory. And sales would have to grow at least sixfold in this period.

While some of us might be willing to pay to make Facebook games like FarmVille and Mafia Wars go away, it appears that Wall Street has other ideas.

Facebook sells a 1.96% stake to a Russian internet firm, a move that values the social networking website at $10bn.