Now that Facebook has released its S-1 in preparation for its initial public offering, the debate over the worth of the social network firm has become heated again. The range of values runs from $50 billion to $125 billion. That is an extraordinary spread given how much investors and analysts know about the company now. At the core of the debate is what Facebook’s nearly 900 million members are worth. Not much, if major advertisers will not use the social network in tremendous numbers. More than $100 billion, if marketers flood the network with ads. The evidence so far is that marketers have not adopted the medium. Facebook’s revenue last year was only $3.7 billion. That is $4.39 per user per year, which by internet property standards is low, too low to support the high end of the value of the company.
A Loss for Panasonic
Panasonic (NYSE: PC) announced its expects a $10 billion loss for the year. That makes it one in a long line of Japanese companies that have either reported losses or revised their profits downward. Sony said yesterday that it would lose money again this year. Part of the problem is the value of the yen, but the trouble runs deeper than that. Another issue is the floods in Thailand, which have cut access to supply chains. That is not an adequate explanation on its own, either. To each of these has to be added that Japan has almost entirely lost its position as a low-cost provider of products ranging from cars to television screens. The shift of the manufacture of these products to South Korea is nearly complete. What was once the critical business advantage of the world’s third largest economy is nearly gone.
The debate among Fed members about the future of the American economy, and how long rates should be kept low, has become ugly and public. Dallas Fed chief Richard Fisher said in a speech that “the economic forecasts and interest-rate projections of the FOMC are ultimately pure guesses.” Put another way, some of the greatest experts about the American economy have not a single clue about what the economy will be like in 2014. The Fed said it will keep rates near zero until then to protect the expansion. Fisher probably wonders what will happen if U.S. GDP begins to grow at 3% or 4% later this year or in 2013. He would argue that there is no way to put odds on that. And his vote against the validity of long-term forecasts has gained more support since the Fed issued its official numbers last week.
Long-term oil prices are backing down, and WTI crude is around $96 a barrel. The fear of an interrupted supply because of an Iranian blockade of the Strait of Hormuz has been overshadowed by forecasts that the global economy has slowed and that Saudi Arabia is prepared to increase production. The drop, if it continues and is long term, will be critical to whatever recovery the economy in the U.S. and elsewhere can mount. It has been a long time since gasoline was below $3 a gallon. And, for consumers, the difference between that price and $4 could be the difference between a few hundred dollars of consumer spending a month and nearly no spending at all.
Douglas A. McIntyre