The Bubble Factor: Social Media + Social Commerce Valuations [infographic]

An interesting infographic from ‘expert network’ Gerson Lehrman Group, looking at current valuations of social commerce and social media outfits, comparing valuations with revenue – to come up with a ‘bubble factor’ – a simple, crude but intuitive ratio for assessing the exuberance – irrational or otherwise – of today’s valuations.

To put things into perspective, the Google bubble factor is relatively modest – valued at 153bn with revenue of $31bn, giving it a bubble factor of about 5.  Apple’s bubble factor is more modest still –  valued at $300bn with revenue if $87bn, with a bubble factor of 3.5.

If Facebook, with $2bn revenue was valued like Apple, it would be worth about $7bn but recent valuations put Facebook at $75bn – with a bubble factor of 37.5.  Is this a bubble about to burst?

• Groupon Bubble Factor 32.8
• LinkedIn Bubble Factor 45
• Facebook Bubble Factor 37.5
• Twitter Bubble Factor 50

• Amazon Bubble Factor 2.6
• Apple Bubble Factor 3.5
• Google Bubble Factor 5

It is possible that the bubble will not so much pop as naturally deflate – After soaring to over $100 per share at its IPO earlier last month, LinkedIn shares have lost 30% of their value – falling back to $69 – (but still 50%+ up on the IPO price of $45).  Perhaps the fact that net income was just $15 million last year has allowed hot air escape from the bubble. Pandora, the Internet radio channel, is now worth less than at IPO just a couple of weeks ago – after jumping 60% from IPO price of $16, the music streaming service is now trading at $15.37.

There is still talk that group-buy giant Groupon will IPO for up to $30bn, but for a company that lost $413 million last year and another $114 million in the first quarter of 2011, investors may think twice.  Investor guru Warren Buffet has passed verdict on upcoming social media IPOs in general  “Most of them will be overpriced.”

Will the bubble have popped/punctured by the time Facebook and Groupon get to IPO?  At worst Facebook and Groupon could become the go.com and boo.com of the social media tech bubble – and at best they could take a decade, like Amazon, to recover to IPO levels.

Augie Ray, ex-analyst from social media bears Forrester, posts four recommendations to prepare yourself for the coming social media bubble burst

1. Don’t buy into the hysteria
2. Prepare others for the social media bubble burst
3. Remind others of what happened following the dot-com crash
4. Recognise there will be survivors

Longterm, we think the social piping being laid down by the big players (Facebook, Groupon, LinkedIn and (perhaps) Twitter) has value – but taking the cue from Amazon investors who waited until after the crash to invest in order to see a 1000% increase in their investment, perhaps waiting for social tech bubble to burst before investing is the smart way to shop social.

And for a trip down memory lane – with lessons learned, a top 10 #fail list of bubble popped .coms from the first bubble.

1. Webvan.com – online grocery delivery ($375m IPO): big infrastructure costs + razor margins = #fail
2. Pets.com – online pet supplies delivery ($82.5m IPO): expensive ad campaigns + impatient customers = #fail
3. Kozmo.com – online convenience store – one hour delivery ($250m investment): when delivery costs more than your margin -> #fail
4. Flooz.com – online currency ($35-50m funding) (like beenz.com (FB credits?)): – why reinvent something that works perfectly well (currencies)… -> #fail
5. eToys.com – online toy store ($166m funding): highly competitive mature market + big ad campaigns -> #fail
6. boo.com – online fashion store ($135m funding): sites that use flash + unrealistic sales expectations -> #fail
7. mvp.com – sports store ($65m funding): couldn’t answer the question of why it was better than a traditional big box sports store? -> #fail
8. go.com – web portal (Disney funded): search beat out portals, curated content has limits -> #fail
9. kibu.com – social network for teens: wrong time, wrong place (2000, Silicon Valley) -> #fail
10. GovWorks.com – ($60m investment): delusions of grandeur can be fatal -> #fail