Predictions for 2012: Facebook and Beyond

1)     Facebook.  

The most obvious prediction is the Facebook IPO.  The question is when and at what valuation.

We would guess the Facebook files by March, 2012 which would mean the actual IPO would be in the June timeframe.  In terms of valuation, Facebook is currently trading at around $70 billion in the secondary market, which would make me guess a valuation of $100 billion.

The numbers by themselves are remarkable, though not outlandish.  One can easily create a scenario where the valuation, though rich, is justified.

2)     Microsoft (MSFT) acquires Research in Motion (RIMM).  

MSFT has been attempting to enter the cellphone market for sometime, with a remarkable lack of success,.  RIMM is on life support, but has a huge user base and impressive corporate ties.  MSFT should leap.  MSFT's current valuation is $257b to RIMM's $8b.  The Risk-Reward ratio is stunning.  If MSFT moves quickly, they can mine the technology, corporate relationships and distribution channels to huge benefit.  And, if the acquisition is a total failure, they could write off the deal and not miss a beat.

3)     Amazon (AMZN) acquires Netflix (NFLX)

The acquisition of Netflix by Amazon requires a bit more faith.  AMZN is $48b in revenues, a valuation of $85 billion and a 1.3 percent profit margin.  NFLX is $3.26b in sales with a valuation of $6.95b and a 7.23 percent profit margin.

Amazon has entered the has extraordinary distribution capabilities, an emerging video streaming business and is focusing on content.  Netflix has recovered from last quarter's missteps, but its reputation is severely tarnished.  Its customers will never again be as enthusiastic.  Compare with AMZN, who has incredibly enthusiastic customers in their Amazon Prime service.  We've rarely seen such incredibly enthusiasm for a company/service.  Amazon Prime has huge market share among the tech crowd.  Just ask.

This is a bit more of a stretch for Amazon, given the relative valuations, but do-able.  And given the relative profit margins, should be accretive to earnings no matter how you look at it.