Pre-IPO considerations for Facebook, Twitter and Groupon

Silicon Valley valuations are going through the roof. Facebook is at $50bn, Groupon at $6.4bn and Twitter at $3.7bn. I wrote about it myself over here (subs only). For the non-investment souls amongst us, it is good to point out a number of extra considerations, esp. when reference to the Internet Bubble is made:

• A $50bn value for a 6 year old company remains striking in any case. However, companies such as Facebook and Groupon are pretty healthy businesses, with solid revenue streams and presumably high margins. It must also be remembered that Google reached the $50bn valuation milestone after just a few years (not long after the IPO in 2004). Still, with sales of 'just a few billion', a $50bn valuation is a stretch.
• Investing requires a rather short-term focus. After all, you can buy and sell stocks at the click of a mouse. As a result, trending is a very important quantity for investors, and is used in several different forms, both in technical analysis and in quantitative analysis. The consequence of all this is that a stock can be given a Buy recommendation, even if its valuation is sharp.
• Investors with a longer-term focus must weigh the seemingly low entry barrier for social networks and daily deals sites, and the degree to which the company has been able to organise a network effect.
• Monetisation is another thing to consider. Look at how this affects Twitter (still struggling to find a solid revenue stream) versus Facebook (the stupid Like button is a perfect advertiser tool). Twitter has about one third the number of users that Facebook has, but Facebook's value is more than 13 times Twitter's