4 ms·

Aye, it's faulty, but how else do you value a site like this?

unalone 18y ago
I'd be very cynical and evaluate low. Facebook has a lot of buzz and a killer userbase, but that's a sign of intrinsic value, not monetary.
- kwamenum86 18y ago
  That's is what I meant when I said 33.33 does not seem like a stretch- seems low. I doubt they made the valuation based solely on how many users they have, meaning that they are really valuing their users at <33.33. The thing is there are so many cool ways to exploit the data that it is tough for people not to give them a multi-billion dollar valuation. They are basically Google without a proven data mining strategy and business plan. 4 billion dollars seems high I admit. I think another thing you have to look at is how valuable fb could be in the "right" hands i.e. someone who is focused on revenue rather than growth. Then the multi-billion dollar valuation becomes more realistic when you think about what a Microsoft, Yahoo, or Google with do with that data.
gnaritas 18y ago
How about by their income, like the rest of the world.
netcan 18y ago
Well you look at probable revenues, & guess. Say facebook can bust up their % of the online display ad market. Now I believe this is a relatively arbitrary market. There are budgets. A certain amount is allocated to online ads. Their effectiveness will never be like Google's. In fact, Google has nothing to do with this. Search ads are different. Google is like hotel booking sites or product comparison sites or Yellow Pages or anyone else who controls what item people find within a category. YP controls(ed) what businesses get found, hotel sites (and travel agents before them), what hotels get found & Google contols which sites get found. Linkedin controls what business people get found, so it's different. Facebook controls which people get found. There's no business model there. If you want to get a business model out of that you'd need there to be people willing to pay for friends. I doubt there is. Facebook just isn't part of this game. That's unfortunate because it is a more elegant & valuable game then the 'display advertising' but there you go. So let's get to the business of guessing. What can happen if we think positive? - The display advertising market can just grow buy itself. Budgets get bigger, their 1.1% is worth more. Likelihood? I'd say 60/40 for (just guessing). But how much bigger? I'd guess not much. Definitely not more then 200% 300%. There's also a chance it'll get worse. Especially this coming year. - Someone else may figure out how to make these more effective. Google has a lot invested in generalist 'impressions.' So do a lot of other smart companies. They may figure out a way to make direct response display ads work. But they haven't yet, and that's telling. What are the chances? I guess I'd say under 50/50. - Facebook will figure it out for themselves. They have the bulk to have a go. They might find a way to leverage data & connections between people & maybe smart advertisers might figure out cool things to do with that given some cool tools. I can think of scenarios: A 1% very interconnected segment of Texas knows all about some new energy drink. it seems to them that everyone knows about it. Everyone seems to be drinking it. But outside their circle, noone is. - maybe. This last one is the wildcard. I don't think the chances of pulling it off are great. If they do there is potential upside. But how much? I dunno. I can't see them ever pulling in the $5b per year revenue. There is doubt as to whether they'll every hit $500m, but they probably can. So what are they worth at $250m revenue what are they worth at $5b. The chance of maintaining at least $250m I say are at least 90% the chances of hitting 500m are 70%, 1b>> 50% 5b >> 10%. That's just guessing & I think I'm being generous. What are you willing to pay now for facebook with those numbers?
- kwamenum86 18y ago
  Revenue is great. But what about profitability? Right now it is unclear how they will ever profit and I think you have to take that into account when you make your valuation. You can't say, "well Google did not know how they were going to profit but they figured it out" because when you do that you just bloat the evaluation through mindless speculation. Bloated valuations == bubble, which is why I think we may be blaming fb if/when the next tech bubble arrives. Revenue is relatively easy to generate. Profit is much more difficult. I have seen revenue projections between 250 and 300 mil for this year, which is ~2.08 to 2.50 per user. That sucks. Plain and simple. End of story. It costs more per user to run the site right now. Then again (yes I am arguing with myself) the valuation can and should take into account what someone else could do with that data. Just because Facebook (Zuckerberg) sucks at monetizing the social graph does not mean someone else would suck too.
  - netcan 18y ago
    Your right. That's true. I was assuming that since the 'product' is relatively mature, their costs should be more or less known. Their revenue is the part missing from the equation.

I'd be very cynical and evaluate low. Facebook has a lot of buzz and a killer userbase, but that's a sign of intrinsic value, not monetary.

kwamenum86 18y ago
That's is what I meant when I said 33.33 does not seem like a stretch- seems low. I doubt they made the valuation based solely on how many users they have, meaning that they are really valuing their users at <33.33. The thing is there are so many cool ways to exploit the data that it is tough for people not to give them a multi-billion dollar valuation. They are basically Google without a proven data mining strategy and business plan. 4 billion dollars seems high I admit. I think another thing you have to look at is how valuable fb could be in the "right" hands i.e. someone who is focused on revenue rather than growth. Then the multi-billion dollar valuation becomes more realistic when you think about what a Microsoft, Yahoo, or Google with do with that data.

gnaritas 18y ago

How about by their income, like the rest of the world.

netcan 18y ago

Well you look at probable revenues, & guess. Say facebook can bust up their % of the online display ad market. Now I believe this is a relatively arbitrary market. There are budgets. A certain amount is allocated to online ads. Their effectiveness will never be like Google's. In fact, Google has nothing to do with this. Search ads are different. Google is like hotel booking sites or product comparison sites or Yellow Pages or anyone else who controls what item people find within a category. YP controls(ed) what businesses get found, hotel sites (and travel agents before them), what hotels get found & Google contols which sites get found. Linkedin controls what business people get found, so it's different. Facebook controls which people get found. There's no business model there. If you want to get a business model out of that you'd need there to be people willing to pay for friends. I doubt there is. Facebook just isn't part of this game. That's unfortunate because it is a more elegant & valuable game then the 'display advertising' but there you go. So let's get to the business of guessing. What can happen if we think positive? - The display advertising market can just grow buy itself. Budgets get bigger, their 1.1% is worth more. Likelihood? I'd say 60/40 for (just guessing). But how much bigger? I'd guess not much. Definitely not more then 200% 300%. There's also a chance it'll get worse. Especially this coming year. - Someone else may figure out how to make these more effective. Google has a lot invested in generalist 'impressions.' So do a lot of other smart companies. They may figure out a way to make direct response display ads work. But they haven't yet, and that's telling. What are the chances? I guess I'd say under 50/50. - Facebook will figure it out for themselves. They have the bulk to have a go. They might find a way to leverage data & connections between people & maybe smart advertisers might figure out cool things to do with that given some cool tools. I can think of scenarios: A 1% very interconnected segment of Texas knows all about some new energy drink. it seems to them that everyone knows about it. Everyone seems to be drinking it. But outside their circle, noone is. - maybe. This last one is the wildcard. I don't think the chances of pulling it off are great. If they do there is potential upside. But how much? I dunno. I can't see them ever pulling in the $5b per year revenue. There is doubt as to whether they'll every hit $500m, but they probably can. So what are they worth at $250m revenue what are they worth at $5b. The chance of maintaining at least $250m I say are at least 90% the chances of hitting 500m are 70%, 1b>> 50% 5b >> 10%. That's just guessing & I think I'm being generous. What are you willing to pay now for facebook with those numbers?

kwamenum86 18y ago
Revenue is great. But what about profitability? Right now it is unclear how they will ever profit and I think you have to take that into account when you make your valuation. You can't say, "well Google did not know how they were going to profit but they figured it out" because when you do that you just bloat the evaluation through mindless speculation. Bloated valuations == bubble, which is why I think we may be blaming fb if/when the next tech bubble arrives. Revenue is relatively easy to generate. Profit is much more difficult. I have seen revenue projections between 250 and 300 mil for this year, which is ~2.08 to 2.50 per user. That sucks. Plain and simple. End of story. It costs more per user to run the site right now. Then again (yes I am arguing with myself) the valuation can and should take into account what someone else could do with that data. Just because Facebook (Zuckerberg) sucks at monetizing the social graph does not mean someone else would suck too.
- netcan 18y ago
  Your right. That's true. I was assuming that since the 'product' is relatively mature, their costs should be more or less known. Their revenue is the part missing from the equation.