The year was 1996 and I vividly remember sitting in my Finance 101 class tought by Dr. Benecke at the University of Nebraska at Omaha. There was a guy named Mike who was a pretty sharp guy and he was telling me that he was taking out a student loan to buy some shares of Yahoo. My impression of him after he told me that changed quite a bit. I thought he was crazy but he probably made good money on the purchase since it went straight up until the spring of 2000. After graduating in 1996 my first job was with the venture capital division of the Omaha World-Herald, the newspaper that Buffett just bought. My first investment was in a small startup out of Wichita that had developed a price comparision serviced called Bottomdollar.com. We invested $1 million for 10% of the company and six months later, in December of 1999, it was acquired by a public company called ShopNow.com for $60 million.
Shopnow.com was the prototypical dot-com of the era, lots of people, a beauttiful office, a state-of-the-art data center, little revenue, and big losses. It wasn’t alone, high fliers such as Alta Vista, Lycos, Pointcast, Omniture, Infoseek and the infamous pets.com also roamed the landscape of what people were thought were the future. Of course, there was also a little company called Google that had this great search engine but, at the time, had not figured out any way to monetize that traffic. Fast forward 12 years and that little company is generating almost $40 billion of revenue and about $10 billion in after-tax profit.
Facebook in unlike any of the these companies. The scale is truly awesome. Yet it’s been able to monetize very little of what it’s built, certainly not enough to justify a $100 billion valuation.
“Wall Street people learn nothing and forget everything.” - Ben Graham
Where do you think Facebook will do after it’s IPO? Will Facebook be the next Google or Shopnow.com?