5 ms·

I'm new this this, so help me out. If this is true (particularly the reference to advertising=1.27% of GDP) then an expectation of future revenue of all FaceGo

I'm new this this, so help me out. If this is true (particularly the reference to advertising=1.27% of GDP) then an expectation of future revenue of all FaceGoog-advertising will be in the range of 1.27% x (GDP of US) x 50% of advertising market. This works out to 115 Billion per year. Google+FB's market combined current revenue is $93 Billion. Is that reasonable? If so, isn't FB's market cap a little silly?

benlower 11y ago
Why only 50% of the ad spend? I think the article makes the case that all ad spend is moving to digital. Probably not ever reaching 100% but a lot closer to 100 than to 50.
- rubidium 11y ago
  50% is a guess based more on the linked article that shows the internet share of advertising's growth rate is slowing down (http://images.bwbx.io/cms/2014-02-28/ADS_revenue-after-5-years.jpg http://images.bwbx.io/cms/2014-02-28/ADS_revenue-after-5-yea...). Also look at the linked graph from the 1.29% article: http://images.bwbx.io/cms/2014-02-28/ADS_medium_share2.jpg http://images.bwbx.io/cms/2014-02-28/ADS_medium_share2.jpg Each generation of advertising takes over more, but magazine, radio, are remarkably robust. TV will remain too (even if some transfers to Hulu/Netflix/etc...).
  - morgante 11y ago
    > 50% is a guess based more on the linked article that shows the internet share of advertising's growth rate is slowing down That's mostly due to the explosive growth of mobile, which it seems that graph leaves out.
wodenokoto 11y ago
Their valuation isn't based on monetizing the US market, but the entire world.
- rubidium 11y ago
  Ok, so that's a x4.2 difference. Of course, globally they face some stiffer competition.
  - mathattack 11y ago
    A couple thoughts: 1 - Market cap is (theoretically) the Net Present Value (NPV) of future cash flows. You have to be careful about comparing this NPV (discounting forever) with a 1 year slice. When interest rates are low, the future cash flows have a lot of value. 2 - Facebook's value is likely based on other things too. Advertising is just 1 way to monetize their users. Imagine hijacking all of voice communications as an example.
    - rubidium 11y ago
      Thanks, that is helpful additional info. So to summarize, the market value of facebook assumes 1) It becomes co-dominant web-advertiser with google in the US AND 2) It finds another way to make some money (either by other advertising markets OR other products/features that people pay for).
      - mr_luc 11y ago
        Which is pretty plausible, right? (Becoming co-dominant with google). The other thing to consider is the competitive/strategic landscape. It's not so much that the market 'assumes' that Facebook will invent new ways of making money, but rather that regardless of who figures it out, facebook is so incredibly well positioned at the moment (ubiquitous social network) as to give it a large competitive advantage, and let it eat other companies' lunch. The market has examples of other similarly well-positioned companies, like Microsoft in the early 90s, to draw on.
      - mathattack 11y ago
        I view it as an AND/OR 1) It dominates advertising for the long future AND ( 2a) It's discount rate (US govt borrowing rate plus a risk premium) is very low OR 2b) It finds another way to make money ) Facebook's main advantage is a treasure trove of real data about real people, who use their real names.
gnopgnip 11y ago
Revenue =/= market cap
morgante 11y ago
> Is that reasonable? If so, isn't FB's market cap a little silly? Facebook's market cap is $267.7B, which would be totally justified at $115B in revenue. Also keep in mind that the 1.27% is not fixed. Advertising has fluctuated as high as 2% of GDP, which leaves plenty of growth potential for Facebook and Google.
- rubidium 11y ago
  Yea, I agree if its revenue reaches $115B. I guess I question that happening if it has to share the pie with Google. But I see more now why it's valued as it is (I don't think it's silly).

benlower 11y ago

Why only 50% of the ad spend? I think the article makes the case that all ad spend is moving to digital. Probably not ever reaching 100% but a lot closer to 100 than to 50.

rubidium 11y ago
50% is a guess based more on the linked article that shows the internet share of advertising's growth rate is slowing down (http://images.bwbx.io/cms/2014-02-28/ADS_revenue-after-5-years.jpg http://images.bwbx.io/cms/2014-02-28/ADS_revenue-after-5-yea...). Also look at the linked graph from the 1.29% article: http://images.bwbx.io/cms/2014-02-28/ADS_medium_share2.jpg http://images.bwbx.io/cms/2014-02-28/ADS_medium_share2.jpg Each generation of advertising takes over more, but magazine, radio, are remarkably robust. TV will remain too (even if some transfers to Hulu/Netflix/etc...).
- morgante 11y ago
  > 50% is a guess based more on the linked article that shows the internet share of advertising's growth rate is slowing down That's mostly due to the explosive growth of mobile, which it seems that graph leaves out.

wodenokoto 11y ago

Their valuation isn't based on monetizing the US market, but the entire world.

rubidium 11y ago
Ok, so that's a x4.2 difference. Of course, globally they face some stiffer competition.
- mathattack 11y ago
  A couple thoughts: 1 - Market cap is (theoretically) the Net Present Value (NPV) of future cash flows. You have to be careful about comparing this NPV (discounting forever) with a 1 year slice. When interest rates are low, the future cash flows have a lot of value. 2 - Facebook's value is likely based on other things too. Advertising is just 1 way to monetize their users. Imagine hijacking all of voice communications as an example.
  - rubidium 11y ago
    Thanks, that is helpful additional info. So to summarize, the market value of facebook assumes 1) It becomes co-dominant web-advertiser with google in the US AND 2) It finds another way to make some money (either by other advertising markets OR other products/features that people pay for).
    - mr_luc 11y ago
      Which is pretty plausible, right? (Becoming co-dominant with google). The other thing to consider is the competitive/strategic landscape. It's not so much that the market 'assumes' that Facebook will invent new ways of making money, but rather that regardless of who figures it out, facebook is so incredibly well positioned at the moment (ubiquitous social network) as to give it a large competitive advantage, and let it eat other companies' lunch. The market has examples of other similarly well-positioned companies, like Microsoft in the early 90s, to draw on.
    - mathattack 11y ago
      I view it as an AND/OR 1) It dominates advertising for the long future AND ( 2a) It's discount rate (US govt borrowing rate plus a risk premium) is very low OR 2b) It finds another way to make money ) Facebook's main advantage is a treasure trove of real data about real people, who use their real names.

gnopgnip 11y ago

Revenue =/= market cap

morgante 11y ago

> Is that reasonable? If so, isn't FB's market cap a little silly? Facebook's market cap is $267.7B, which would be totally justified at $115B in revenue. Also keep in mind that the 1.27% is not fixed. Advertising has fluctuated as high as 2% of GDP, which leaves plenty of growth potential for Facebook and Google.

rubidium 11y ago
Yea, I agree if its revenue reaches $115B. I guess I question that happening if it has to share the pie with Google. But I see more now why it's valued as it is (I don't think it's silly).