Market Valuation and the Effects of GDP Expenditures Essay

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.

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“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…