Breakout

Facebook’s Future: Predicting the Next 5 Years

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Facebook (FB) officially becomes a public company today. Shares are just hours away from debuting on the Nasdaq. The social media king made history becoming the largest U.S. internet IPO ever. Yesterday afternoon the company sold 421.2 million shares priced at $38 each, giving the company a $104 billion valuation.

More important than today's event, is how Facebook transitions then evolves as a public company. Five years ago, valuing Facebook above $100B would seem absurd. Remember 2006? Yahoo (YHOO) almost scooped up the company for a mere $1 billion. One tech-savvy, deep-thinker was way ahead of the curve on calling for Facebook's rise above $100B: James Altucher, managing director of Formula Capital.

"I really think Facebook is like a microcosm of the entire Internet. It's not just a website… If they were to just sit on their hands and go public, I think you could start seeing Google-like numbers in the revenues, in the EBITDA, and in the valuation. So if Google is at a $150 billion market cap, eventually Facebook is going to hit that if it were to go public and stay through it the long haul."

-James Altucher on CNBC, July 25, 2007

Not a bad vision to have five years ago. Of course, seeing clearly in hindsight does nothing to make you money. On a day when every investor is at least entertaining the idea of buying FB shares, Breakout invited Altucher on to discuss what the next five years hold for Facebook.

"I think five years from now, and it's hard to predict 2017, but let's say they have $10 billion in earnings, it's not unreasonable for them [Facebook] to have a $300 billion market cap," he predicts.After the typical noisy months following an IPO, Altucher sees FB shares rising steadily towards a $100 - $120 price range in 2017. He points to the obvious revenue drivers in gaming and advertising. But these are the exact areas that have recently raised concerns due to slowing revenue growth.

General Motors (GM) came out this week and said exposure on Facebook isn't paying off for them, so they pulled $10 million in ad spending. And then there's the mobile monetization challenge that tech giants like Google (GOOG) and Apple (AAPL) are also dealing with. Mobile users —Facebook has roughly 83 million—won't tolerate ads over-crowding their small screens. Facebook's S-1 IPO filing noted the challenge.

"Growth in use of Facebook through our mobile products, where our ability to monetize is unproven, as a substitute for use on personal computers may negatively affect our revenue and financial results." —Facebook S-1 statement

But this doesn't deter Altucher.

"Facebook is basically the entire Internet on one website," he says. "It's like a scrubbed clean Internet." He points out that Super Bowl ads don't even bother driving viewers to a company website, but rather to a company's Facebook page. Once on Facebook, if a customer "likes" a product, then the company can continue to engage, converse, and promote other products.

"You were never in the history of the world, able to put an ad out and target 901 million customers. What other medium can you do that in?"

Not television, radio or newspapers that's for sure.

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