Wall Street Journal Online was selected due to its discussion of Gross Domestic Product (GDP) regarding the United States and globally. Facebook, Inc. and Alphabet, Inc., the parent company of Google, have very high market valuation, in large part due to their dominance of the mobile advertising market. However, the author believes their very high combined valuation may be unduly optimistic, based on the current percentages of U.S. GDP and global GDP spent on mobile advertising and projected percentages of GDP spent on mobile advertising by 2025. Gross Domestic Product (GDP) is an important facet of Macroeconomics because it is a basic tool for determining a nation’s and the world’s productivity, income and expenditure. In this article, GDP is discussed, expenditures in particular are discussed and the dramatic effect of adjusting expenditures is shown when examining Facebook’s and Alphabet’s glowing combined market valuation.

Body

“Facebook and Google: The $230 Billion Question; Mobile-Advertising Growth Has Driven a Stunning Rise in the Two Companies’ Market Values, but Investors May Be Taking a Glass-Overflowing View” (Gottfried) is an April 12, 2016 Wall Street Journal Online article that examines the possibly overoptimistic market values of Facebook, Inc. and Google’s parent company, Alphabet, Inc., considering the portion of global Gross Domestic Product (GDP) that will be spent on mobile advertising by 2025. Facebook and Google are titans in the mobile advertising market via smartphones. Their dominance of that sector has driven the combined market value of Facebook and Alphabet by almost $250,000,000 in the last year, to a possible current combined market valuation of $947 billion, 14% higher than their current combined value of $830 billion. That rosy valuation is based in large part on their projected continued domination of the world mobile advertising market.

Gottfried believes that valuation may be unduly optimistic, “pricing them to perfection” and assuming even greater domination of the mobile advertising market to 2025. In order for their combined market value to be $947 billion, essentially everything would have to work flawlessly for the two titans. They would need a combined global share of 30% of the mobile advertising market by 2025, 15% more than their current share. In addition, global mobile advertising would have to account for 1% of the global gross domestic product by 2025, though current global spending is only 0.8%, particularly in developing countries. Developing countries spend far less for mobile advertising than does the United States, which does currently spend 1% of its gross domestic product for mobile advertising. Finally, the valuation does not account for the possibility of new, viable competition in the global mobile advertising market. Gottfried believes the far likelier market valuation is $751 billion, 10% lower than the companies’ current combined value. This more modest market value is based on a 25% share of global mobile advertising and global expenditure of 0.9% of global Gross Domestic Product by 2025. Gottfried believes the lower market valuation, while less impressive, is still substantial and should be seriously considered by possible investors.

This article relates to our class material in that Gross Domestic Product is an integral part of Macroeconomics. Gross Domestic Product (GDP) is a crucial tool used by economists to gauge a country’s productivity, income and expenditure. On a national scale, the article discusses the United States’ expenditure of 1% of its GDP for mobile advertising, which is a considerable amount. On a worldwide scale, the article discusses the 0.8 of global GDP currently spent on mobile advertising and the fact that global expenditure for mobile advertising is a far lower percentage of its GDP than that of the United States. Finally, the article discusses the optimistic 1% of global GDP contributing to the rosy market valuation of $947 billion for Facebook, Inc. and Alphabet, Inc., and the slightly less optimistic 0.9% of global GDP contributing to more modest market value of $751 billion for the two companies.

3. Conclusion

The selected article from Wall Street Journal Online questions the glowing combined market valuation of Facebook, Inc. and Alphabet, Inc., the parent company of Google. The market valuation, which has grown almost $250,000,000 in the last year, to a possible current combined market valuation of $947 billion, is largely based on the companies’ dominance of the mobile advertising market. The author believes the valuation is overly enthusiastic, “pricing them to perfection” and assuming even greater command of the mobile advertising market to 2025. The companies’ combined global share would necessarily be 30% market share and necessarily based on 1% of the global Gross Domestic Product (GDP) on mobile advertising. While the United States currently spends 1% of its GDP on mobile advertising, worldwide spending on mobile advertising stands at only 0.8% of global GDP and has far to go before reaching the U.S. level. Adjusting the figures slightly less optimistically, the author believes a market valuation of $751 billion is likelier, which is 10% less than the companies’ current combined value of $810 billion. The article relates to our class in that it addresses Gross Domestic Product, a valuable tool for determining productivity, income and expenditure. The article discusses the percentages of GDP used by the United States and worldwide for mobile advertising, the gap between U.S. and global expenditures and the likely percentages of future GDP expenditures for mobile advertising.

Works Cited

Gottfried, Miriam. “Facebook and Google: The $230 Billion Question; Mobile-Advertising Growth Has Driven a Stunning Rise in the Two Companies’ Market Values, but Investors May Be Taking a Glass-Overflowing View.” 12 April 2016. www.wsj.com. Web. 18 April 2016.