Aside from any political analysis, the below facts about the income/valuation ratios of social media platforms spell unsustainability in a big way.
Imagine social media on SAFE which is independent of the Wall Street/Washington perverse incentives.
Finally, the greatest bicoastal scam is the rampant Bubble Finance prosperity of Wall Street and Silicon Valley. Let’s face it. Facebook——along with Instagram, Whatsapp, Oculus VR and the 45 other testaments to social media drivel that Mark Zuckerberg has acquired with insanely inflated Wall Street play money during the last few years——-is not simply a sinkhole of lost productivity and low-grade self-indulgent entertainment. “Faceplant” is also a colossal valuation hoax.
Why? Because at the bottom, Facebook (FB )is just an Internet billboard. It’s a place where mostly millennials idle their time in or out of their parents’ basement. Whether they grow tired of Facebook or not remains to be seen, but one thing is certain.
To wit, FB has invented nothing, has no significant patents, delivers no products and generates no customer subscriptions or service contracts. Its purported 1.8 billion “MAUs” (monthly average users) are fiercely devoted to “free stuff” in their use of social media.
Therefore, virtually all of its revenue comes from advertising. But ads are nothing like a revolutionary new product such as Apple’s iPhone, which can generate tens of billions of sales out of nowhere.
The pool of advertising dollars, by contrast, is relatively fixed at about $175 billion in the U.S. and $575 billion worldwide. And it is subject to severe cyclical fluctuations. For instance, during the Great Recession, the U.S. advertising spend declined by 15% and the worldwide spend dropped by11%.
And therein lies the skunk in the woodpile. Due to its sharp cyclicality, the trend growth in U.S. ad spending has been about 0.5% per annum. Likewise, the global ad spends increased from about $490 billion in 2008 to $575 billion in 2015, reflecting a growth rate of 2.3% annually.
Yes, there has been a rapid migration of dollars from TV, newspapers and other traditional media to the digital space in recent years. But the big shift there is already over.
Besides that, you can’t capitalize a one-time gain in sales of this sort with even an average market multiple. And that’s saying nothing about the fact that FB’s current $340 billion market cap represents a preposterous multiple of 211 times its $1.6 billion of LTM free cash flow.
In any event, the digital share of the U.S. ad pool rose from 13.5% in 2008 to an estimated 32.5% last year. But even industry optimists do not expect the digital share to gain more than a point or so per year going forward. After all, television, newspapers, magazines and radio and highway billboards are not going to disappear entirely.
Consequently, there are not remotely enough advertising dollars in the world to permit the endless gaggle of social media space entrants to earn revenue and profits commensurate with their towering valuations and the sell side’s hockey stick growth projections. In social media alone, therefore, there is more than $1 trillion of bottled air.