10 ms·

80-1 P/E valuation seems a bit steep to me. I still see this as a $25 Billion company in the long term, which isn't bad for a site that gets much of its revenu

by shoham 15y ago

80-1 P/E valuation seems a bit steep to me. I still see this as a $25 Billion company in the long term, which isn't bad for a site that gets much of its revenue from display ads. Here's a list of websites by 2010 revenue: http://www.incomediary.com/top-earning-websites-in-the-world/ http://www.incomediary.com/top-earning-websites-in-the-world... You'll notice that just about every site in the top 15 sell goods and services (physical: Amazon, eBay or digital: Netflix, iTunes) or search ads (Yahoo, and Google). Display ad based sites languish at the bottom for several reasons, including the fact that the content of those ads are not what you came to the site to engage with. If the numbers are right, then Facebook is bringing in about 1/3 the revenue of eBay, but analysts on secondary markets and elsewhere are giving it a valuation twice that of eBay's: http://finance.yahoo.com/q?s=EBAY http://finance.yahoo.com/q?s=EBAY or five times that of Yahoo's which has twice the revenue: http://finance.yahoo.com/q?s=YHOO http://finance.yahoo.com/q?s=YHOO Hopefully people can see through the hyperbole, and find a fair market value for this company.

ig1 15y ago
Facebook's ad platform is still relatively immature, especially when it comes to long tail advertisers. Hence they have much more potential for growth than say eBay which is a much more mature product. There are standard advertising features such as day-parting and A/B testing that don't exist on Facebook but would significantly increase conversion rates. They're also choosing at the present not to offer targeting on high-value demographic information (for example by job title - linkedin's CPM is 10x that of Facebook on job title targeted ads) which again would allow them to significantly increase revenue.
- shoham 15y ago
  Interesting points, ig. When it comes to revenue, I ask myself "Why do people come to your site". The magic for Google/Yahoo is that you come to their site to leave their site, to find answers to questions like "Where can I find a diamond engagement ring?" and then they get the answers, and some highly relevant, highly lucrative ads. For eBay, and Amazon, you come specifically with the intent to spend money on their site. For Facebook, the name of the game is to get you on their site, keep you there, and to bring you back tomorrow to chat with your friends, something like AIM was 10 years ago, but with a better ad network. So far, with all of the businesses that want me to like them on Facebook, none of them have asked me to buy anything on Facebook, just spread their ads -- paid and earned. Could Facebook be the next ebay or Amazon? Sure, if they want to let every business on their site use their "Pay with Facebook" feature to sell anything. For me, this would justify the current valuation not display ads. Here's a link to LinkedIn's Q2 revenue (120 Million: http://mashable.com/2011/08/04/linkedin-q2-beats-street/ http://mashable.com/2011/08/04/linkedin-q2-beats-street/), which again shows that display ads (plus premium membership fees) don't add up to what search ads, or commission fees do. Even for a site like LinkdIn which is more popular than either Amazon (30 Billion in annual revenue) or eBay (8 Billion in annual revenue). I don't doubt the social utility (pardon the pun) of such networks (I am a founder of one myself), but I question just how much revenue these kind of peripheral ads can really generate.
  - InnocentB 15y ago
    Do you have a source for LinkedIn's popularity being greater than Amazon or eBay? compete.com (not always the most reliable source, I'll admit) lists both sites as being more than 3 times as popular.
    - shoham 15y ago
      Alexa.com has LinkdIn @ 13, Amazon @ 15, and ebay @ 21 globally.
  - ig1 15y ago
    On your Facebook profile set your relationship status to "engaged" and you'll start getting a lot of wedding related adverts. Sure it's not the same as advertising when a user is searching Google for "diamond ring". But a lot of people will never search online for a diamond ring, but they may see an advert on their Facebook for a diamond ring and click on it. Google strength is that advertising is based upon search intent, it's also their weakness. Imagine you were De Beers and you wanted to target people on Google who were engaged but weren't googling for "diamond ring", you might think you could buy ads on related keywords like "wedding invites" - but it turns out Google make it very hard to do this. Unless your ad directly relates to the search term you get a major quality score penalty which means you have to pay a huge premium to advertise. Daily deal sites have been spending a lot on display ads (on Facebook and elsewhere), precisely because of this, because their customers didn't actively search for "daily deal sites" so the only way to reach them is through display ads. And who has the most display ad page views in the world ? - Facebook.
- cletus 15y ago
  When the high P/Es are pointed out about Facebook, the defenders nearly always point out that the platform is immature and/or they haven't monetized yet (this last one is a huge one for Twitter defenders too). To this I say: you're missing the point and you're basically wrong. Ads on Facebook are basically spam. They are not things people want to see, not related to anything they're doing, they are at best crude attempts to convert likes into an audience. But they are as welcome as ads on TV are. Not that advertising isn't (and can't be) effective but there is a time and a place. On Ebay, if you're looking on Ebay you want to buy or sell something. The intent of an Ebay user is about by definition: you almost certainly want to transact something. On Google of course you have the intent of search (disclaimer: I work for Google), which is huge. But on Facebook? Most people just want to share photos, send messages and send updates. Ads are an intrusion. Probably the most important sentence in this piece is: > It was not clear what portion of Facebook's $1.6 billion in revenue in the first half of the year came from advertising sales. Bingo. Within probably 6 months Facebook will have filed an S1 for IPO. At that point we'll get a far better picture of the sources of their revenue. If the $1.6 billion 2011H1 figure is true I suspect a huge portion of that comes from virtual goods. That's bad. While I believe that Facebook is a very valuable property I also believe that it comes with huge risks. A few years ago Facebook was scared at the (then) meteoric rise of Twitter. Social networks seem to be incredibly fickle, possibly even generational (as Myspace was). Even with 700+ million users there is always the risk of users abandoning Facebook for the next thing (IMHO). Also, the games thing is a risk too. Facebook faces the risk of games going elsewhere (eventually as they have an exclusive on many Zynga properties but Zynga doesn't want to be dependent on Facebook long term) or simply new platforms and paradigms emerging, particularly mobile games. What will be interesting to see is whether Facebook enters the search space in coming years.
  - mun2mun 15y ago
    But on Facebook? Most people just want to share photos, send messages and send updates. So why is Google so much desperate to enter into social space?
    - deleted 15y ago
      [deleted]
gojomo 15y ago
Value is more a function of future revenue, and margin, than it is of past revenue. So upward momentum, which Facebook has and Yahoo and EBay do not, explains the higher valuation. Also, valuation comes from the expectation over all possible outcomes. Perhaps there's a 60% chance Facebook winds up just a $25B company. But there's also a 38% chance that it becomes a $200B Google and a 2% chance it becomes a one-of-a-kind $400B post-Google monopoly. The weighted average of those outcomes is $99B, even though your "$25 Billion company" sense remains the modal/most-likely outcome.
- shoham 15y ago
  My question is "Where is that revenue supposed to come from?". Let's assume Facebook's userbase doubles in the next year, and tops out/ holds steady at at 1.5 Billion people for the foreseeable future, and that their revenue per user doubles from $4/year to $8/per year -- there's a reasonable $80 Billion valuation for you, but where to from there? Investors buy stock they think will rise in value. Will FB offer a dividend? Here is the rub with/for FB: The best ads are no ads-- playing the 'Like' game is cheaper, and more authentic for advertisers. Better than Google's search results your posts are more social, cost nothing, and show up in between pictures and posts by friends.
  - rokhayakebe 15y ago
    Where is that revenue supposed to come from? It may be possible they create a good mobile search engine and eat Google's snack.
    - beagle3 15y ago
      Possible, but improbable. Google is not resting on their laurels. And there are already excellent mobile search engines like http://www.doat.com/ http://www.doat.com/ - and though it is excellent, it hasn't yet made a difference.
    - shoham 15y ago
      Well, anything's possible, and I'd even say that they might do something else that neither us nor them nor anyone else has figured out yet, but I can't speculate there. I see Facebook as a potential AOL without the dial-up service, but with more user loyalty, and a potentially unbreakable monopoly on IM. If they can focus on what they doing best -- helping people stay connected with their friends, and not get lost in the hype of dollar valuations they'll be fine. As an investor, I'm short Facebook at an $80 Billion valuation.
plainOldText 15y ago
Quote from incomediary.com (the above link): "Turnover is vanity, profit is sanity, but CASH is king". :)
deleo 15y ago
Facebook could cannibalize all of these markets you mention: nothing prevents them from turning it into a marketplace of new/used stuff and a platform to watch movies on or sell songs. Have a look at the (pirate friendly) Russian vkontakte.ru: whole american TV series and movies can be watched there.
- shoham 15y ago
  could-- more likely, I think that it won't. What's Facebook do? It helps you connect, and reconnect with friends and family -- what's that have to do with buying and selling goods? Why do I need to watch shows on Facebook, and not somewhere else?
  - deleo 15y ago
    Why would you? Well, for the same reason people already do it on vkontakte.ru: - it's easy - if you go fullscreen it doesn't matter where you're streaming from - it lets you discover stuff you might like (what's your friend watching, etc...)
    - shoham 15y ago
      I'm not convinces of this last point -- what my friends and family like has a lot to do with what I like when we do it together moreso than what our actual similarities in taste are.

by shoham 15y ago

ig1 15y ago

Facebook's ad platform is still relatively immature, especially when it comes to long tail advertisers. Hence they have much more potential for growth than say eBay which is a much more mature product. There are standard advertising features such as day-parting and A/B testing that don't exist on Facebook but would significantly increase conversion rates. They're also choosing at the present not to offer targeting on high-value demographic information (for example by job title - linkedin's CPM is 10x that of Facebook on job title targeted ads) which again would allow them to significantly increase revenue.

shoham 15y ago
Interesting points, ig. When it comes to revenue, I ask myself "Why do people come to your site". The magic for Google/Yahoo is that you come to their site to leave their site, to find answers to questions like "Where can I find a diamond engagement ring?" and then they get the answers, and some highly relevant, highly lucrative ads. For eBay, and Amazon, you come specifically with the intent to spend money on their site. For Facebook, the name of the game is to get you on their site, keep you there, and to bring you back tomorrow to chat with your friends, something like AIM was 10 years ago, but with a better ad network. So far, with all of the businesses that want me to like them on Facebook, none of them have asked me to buy anything on Facebook, just spread their ads -- paid and earned. Could Facebook be the next ebay or Amazon? Sure, if they want to let every business on their site use their "Pay with Facebook" feature to sell anything. For me, this would justify the current valuation not display ads. Here's a link to LinkedIn's Q2 revenue (120 Million: http://mashable.com/2011/08/04/linkedin-q2-beats-street/ http://mashable.com/2011/08/04/linkedin-q2-beats-street/), which again shows that display ads (plus premium membership fees) don't add up to what search ads, or commission fees do. Even for a site like LinkdIn which is more popular than either Amazon (30 Billion in annual revenue) or eBay (8 Billion in annual revenue). I don't doubt the social utility (pardon the pun) of such networks (I am a founder of one myself), but I question just how much revenue these kind of peripheral ads can really generate.
- InnocentB 15y ago
  Do you have a source for LinkedIn's popularity being greater than Amazon or eBay? compete.com (not always the most reliable source, I'll admit) lists both sites as being more than 3 times as popular.
  - shoham 15y ago
    Alexa.com has LinkdIn @ 13, Amazon @ 15, and ebay @ 21 globally.
- ig1 15y ago
  On your Facebook profile set your relationship status to "engaged" and you'll start getting a lot of wedding related adverts. Sure it's not the same as advertising when a user is searching Google for "diamond ring". But a lot of people will never search online for a diamond ring, but they may see an advert on their Facebook for a diamond ring and click on it. Google strength is that advertising is based upon search intent, it's also their weakness. Imagine you were De Beers and you wanted to target people on Google who were engaged but weren't googling for "diamond ring", you might think you could buy ads on related keywords like "wedding invites" - but it turns out Google make it very hard to do this. Unless your ad directly relates to the search term you get a major quality score penalty which means you have to pay a huge premium to advertise. Daily deal sites have been spending a lot on display ads (on Facebook and elsewhere), precisely because of this, because their customers didn't actively search for "daily deal sites" so the only way to reach them is through display ads. And who has the most display ad page views in the world ? - Facebook.
cletus 15y ago
When the high P/Es are pointed out about Facebook, the defenders nearly always point out that the platform is immature and/or they haven't monetized yet (this last one is a huge one for Twitter defenders too). To this I say: you're missing the point and you're basically wrong. Ads on Facebook are basically spam. They are not things people want to see, not related to anything they're doing, they are at best crude attempts to convert likes into an audience. But they are as welcome as ads on TV are. Not that advertising isn't (and can't be) effective but there is a time and a place. On Ebay, if you're looking on Ebay you want to buy or sell something. The intent of an Ebay user is about by definition: you almost certainly want to transact something. On Google of course you have the intent of search (disclaimer: I work for Google), which is huge. But on Facebook? Most people just want to share photos, send messages and send updates. Ads are an intrusion. Probably the most important sentence in this piece is: > It was not clear what portion of Facebook's $1.6 billion in revenue in the first half of the year came from advertising sales. Bingo. Within probably 6 months Facebook will have filed an S1 for IPO. At that point we'll get a far better picture of the sources of their revenue. If the $1.6 billion 2011H1 figure is true I suspect a huge portion of that comes from virtual goods. That's bad. While I believe that Facebook is a very valuable property I also believe that it comes with huge risks. A few years ago Facebook was scared at the (then) meteoric rise of Twitter. Social networks seem to be incredibly fickle, possibly even generational (as Myspace was). Even with 700+ million users there is always the risk of users abandoning Facebook for the next thing (IMHO). Also, the games thing is a risk too. Facebook faces the risk of games going elsewhere (eventually as they have an exclusive on many Zynga properties but Zynga doesn't want to be dependent on Facebook long term) or simply new platforms and paradigms emerging, particularly mobile games. What will be interesting to see is whether Facebook enters the search space in coming years.
- mun2mun 15y ago
  But on Facebook? Most people just want to share photos, send messages and send updates. So why is Google so much desperate to enter into social space?
  - deleted 15y ago
    [deleted]

gojomo 15y ago

Value is more a function of future revenue, and margin, than it is of past revenue. So upward momentum, which Facebook has and Yahoo and EBay do not, explains the higher valuation. Also, valuation comes from the expectation over all possible outcomes. Perhaps there's a 60% chance Facebook winds up just a $25B company. But there's also a 38% chance that it becomes a $200B Google and a 2% chance it becomes a one-of-a-kind $400B post-Google monopoly. The weighted average of those outcomes is $99B, even though your "$25 Billion company" sense remains the modal/most-likely outcome.

shoham 15y ago
My question is "Where is that revenue supposed to come from?". Let's assume Facebook's userbase doubles in the next year, and tops out/ holds steady at at 1.5 Billion people for the foreseeable future, and that their revenue per user doubles from $4/year to $8/per year -- there's a reasonable $80 Billion valuation for you, but where to from there? Investors buy stock they think will rise in value. Will FB offer a dividend? Here is the rub with/for FB: The best ads are no ads-- playing the 'Like' game is cheaper, and more authentic for advertisers. Better than Google's search results your posts are more social, cost nothing, and show up in between pictures and posts by friends.
- rokhayakebe 15y ago
  Where is that revenue supposed to come from? It may be possible they create a good mobile search engine and eat Google's snack.
  - beagle3 15y ago
    Possible, but improbable. Google is not resting on their laurels. And there are already excellent mobile search engines like http://www.doat.com/ http://www.doat.com/ - and though it is excellent, it hasn't yet made a difference.
  - shoham 15y ago
    Well, anything's possible, and I'd even say that they might do something else that neither us nor them nor anyone else has figured out yet, but I can't speculate there. I see Facebook as a potential AOL without the dial-up service, but with more user loyalty, and a potentially unbreakable monopoly on IM. If they can focus on what they doing best -- helping people stay connected with their friends, and not get lost in the hype of dollar valuations they'll be fine. As an investor, I'm short Facebook at an $80 Billion valuation.

plainOldText 15y ago

Quote from incomediary.com (the above link): "Turnover is vanity, profit is sanity, but CASH is king". :)

deleo 15y ago

Facebook could cannibalize all of these markets you mention: nothing prevents them from turning it into a marketplace of new/used stuff and a platform to watch movies on or sell songs. Have a look at the (pirate friendly) Russian vkontakte.ru: whole american TV series and movies can be watched there.

shoham 15y ago
could-- more likely, I think that it won't. What's Facebook do? It helps you connect, and reconnect with friends and family -- what's that have to do with buying and selling goods? Why do I need to watch shows on Facebook, and not somewhere else?
- deleo 15y ago
  Why would you? Well, for the same reason people already do it on vkontakte.ru: - it's easy - if you go fullscreen it doesn't matter where you're streaming from - it lets you discover stuff you might like (what's your friend watching, etc...)
  - shoham 15y ago
    I'm not convinces of this last point -- what my friends and family like has a lot to do with what I like when we do it together moreso than what our actual similarities in taste are.