Facebook Real Value

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TABLE OF CONTENTS

CHAPTER 2: LITERATURE REVIEW1

Hitsory of Interent - The Dot.com bubble1

What happened during Dot.com Bubble?2

Investors' Trends for Investing in the Tech Sector3

Dot.com Crisis4

DCF Analysis for Valuing Internet Companies5

Investors' perception8

Reason for the failure of Dot.com Companies10

Relation of Facebookwith the Dot.com Bubble13

Problems faced by Facebook14

Facebook and Goldman's Investment15

Is Facebook really worth $50 billion?15

REFERENCES19

APPENDIX21

CHAPTER 2: LITERATURE REVIEW

Hitsory of Interent - The Dot.com bubble

Dot.com bubble is explained as an increase in the market equity fueled by increased investment in Internet-based companies. In other words, During dot.com bubble, the number of internet companies and technological sites, substantially increased. Dotcom bubble - bubble economy exited between the periods from 1995 to 2001. The climax occurred March 10, 2000, when the index NASDAQ reached 5132.52 points during trading, and dropped to 5048.62 at closing. It is cysts due to take-off of shares of Internet companies (mostly American), and the emergence of many new Internet companies, and reorientation of the older companies in the Internet business during the century. Shares of companies that offered to use the Internet to generate income, fabulously shot up in price. These high prices are justified numerous commentators and economists who claimed that came the "new economy", in fact, these new business models proved ineffective, and the money spent mostly on advertising and large loans led to a wave of bankruptcies, massive fall the index of NASDAQ, and the collapse of prices for server computers (Veronesi, 2006).

This stock market event is often stated by the behaviourists as a clear evidence of illogical and irrational behaviour of stock market, known as Internet bubble. Reviewing the work of Robert Shiller's work (2000), Irrational Exuberance, in which he agrees to the fact that the event was a high-tech sector of market that he could report in his thesis. Yet over here, he could state that there was no investment opportunity available for the rational investors before the bubble had popped.

What happened during Dot.com Bubble?

During 1990-2001, the equity prices of of United States increased approximately five-fold, the growth rate of prices of equity increased from 10.4% between 1990-1995 to 21.2% between 195-2001. Alothough, the boom in the rest of the stock market was less spectacular, yet there were impressive historical standards set. Many of the Internet companies have learnt the lessons from the dot.com bubble burst. In the dot.com bubble, many of the investors lost their invested money (Miller, et, al., 2010). There are several causes that for the dot.com bubble, from the period between 1995 and 2001 is considered as the period of dot.com bubble. 1995 period is considered as a growth period for the Internet users, many Internet companies predicted many potential customers. In the middle and late 90s, many Internet companies had started up (Taffler, Tuckett, 2002). These Internet companies were referred as dot.coms because in the end of their addresses .com was placed.

During early 2000, the prices of equity had gone out of control. Price compared to earning ratios increased more then ...