Facebook Overvalued; Technology Report by Leading Financial Newsletter Profit Confidential

Social media is hot and growing, but making money from it is another story, according to George Leong, contributor to Profit Confidential. Before the much-anticipated initial public offering (IPO) of Facebook, Inc. and subsequent sell-off in the stock price, Leong already believed that the valuation was distorted.

In the article, Facebook Stock Faces Valuation Issues, published on May 18, 2012, Leong compared Facebook to Google.

“Facebook is valued at about $100 billion versus the $207-billion market cap of Google,” says Leong. “Yet, when Google first appeared, the market cap was a mere $32.6 billion, which was significant at that time, but much more reasonable than Facebook”

As Leong points out, Facebook is not making a lot of money from its 900 million users. “The company has yet to figure out how to drive revenues from its users the way Google has done with its advertising and other broad Internet services and assets,” says Leong.

Leong thinks that Facebook will need to expand its revenue stream away from being predominately advertising.

“My concern is regarding Facebook’s soft advertising sales and its failure so far to enter China. Just ask Google about China,” says Leong.

Leong also thinks that Facebook needs to increase its user base. “The 900 million users are impressive given the short eight-year history of the company, but the real growth will be the ability of the company to get into China,” says Leong.

The difficulty, according to Leong, will be to appease the Chinese censorship and strict privacy rules.

Profit Confidential, which has been published for over a decade now, has been widely recognized as predicting five major economic events over the past 10 years. In 2002, Profit Confidential started advising its readers to buy gold-related investments when gold traded under $300 an ounce. In 2006, it “begged” its readers to get out of the housing market…before it plunged.

Profit Confidential was among the first (back in late 2006) to predict that the U.S. economy would be in a recession by late 2007. The daily e-letter correctly predicted the crash in the stock market of 2008 and early 2009. And Profit Confidential turned bullish on stocks in March of 2009 and rode the bear market rally from a Dow Jones Industrial Average of 6,440 on March 9, 2009, to 12,876 on May 2, 2011, a gain of 99%.

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Profit Confidential is Lombardi Publishing Corporation’s free daily investment e-letter. Written by financial gurus with over 100 years of combined investing experience, Profit Confidential analyzes and comments on the actions of the stock market, precious metals, interest rates, real estate, and the economy. Lombardi Publishing Corporation, founded in 1986, now with over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more on Lombardi, and to get the popular Profit Confidential e-letter sent to you daily, visit www.profitconfidential.com.

Michael Lombardi, MBA, the lead Profit Confidential editorial contributor, has just released his most recent update of Critical Warning Number Six, a breakthrough video with Lombardi’s current predictions for the U.S. economy, stock market, U.S. dollar, euro, interest rates and inflation. To see the video, visit http://www.profitconfidential.com/critical-warning-number-six.