How Much Is Facebook Worth?
Posted by Nick O'Neill on August 28th, 2007 3:38 PMThere is a lot of buzz surrounding the value of Facebook. Currently they are growing like gangbusters but there are no signs of similar growth rates in their advertising revenue. One thing that is interesting though is the rapid growth in users from the older demographic. The rapid growth in this area is a phenomenon not previously experienced by other social networks. The wide range of demographics allows for developers to create applications that cater to each of those demographics.
Advertisers also want a piece of the action and that is where all the revenue will come from. Lee Lorenzen likes to project Facebook’s valuation at $100 billion but most would suggest this is due to his stake in Facebook. He developed the Altura Ventures investment fund for investing in Facebook applications. Lee argues that Facebook is worth $100 billion based on their future entry into the people search business.
Even if people search accounts for over 30% of the search online, I’m not quite sure that this values them at $100 billion. Google’s market capitalization is around $150 billion. They have far more capital invested in expanding their reach then Facebook currently does. Obviously I think Facebook is a phenomenal platform but I think at their current size, talks of $100 billion are slightly ridiculous. How much do you think Facebook is worth?
August 28th, 2007 at 5:58 pm
Hahah 100 Billion? Here we go web2.0 crash. Are you telling me that facebook is worth 3.1/3 times more than Yahoo? Ridiculous.
August 29th, 2007 at 5:14 am
It is worth as much as someone is willing to pay for it, when it comes down to it. Personally, I think they should have taken the money ($1 billion) Yahoo offered them last year.And let’s not forget all you’re buying is a url. Yes, you get all those users too… BUT … It’s a social network and all those users can just as easily jump ship to the next ‘hot’ network (and in this day and age only a fool would bet on this not happening to some degree) leaving any buyer with a whole lot of nothing. My take is that if anyone offered them over $3 billion they’d bite their hand off to accept.
August 29th, 2007 at 6:48 pm
Nick,
WRT to my motives, I don’t make the point about Facebook being worth $100 billion because I run Altura Ventures the first VC focused soley on investing in Facebook Apps. Instead, I’m investing in Facebook Apps because I truly believe Facebook will be worth $100 billion and unfortunately, I don’t have current ownership in Facebook itself nor do I have any way of directly investing in Facebook. Therefore, the only way to win big as Facebook’s value is more broadly recognized is to invest in Facebook Apps.
Let me say that I appreciate your skepticism regarding Facebook being worth $100 billion and I hope that you will read the full discussion board post that back up the point and not dismiss it as some kind of random hype.
To summarize the points in my post:
1. Facebook will grow to 200 million users by Dec. 2008. I base this on what they’ve already accomplished:
FB Year 1 (Dec. 31, 2004) — 1 million
FB Year 2 (Dec. 31, 2005) — 5 million
FB Year 3 (Dec. 31, 2006) — 12 million
FB Year 4 (Apr. 26, 2007) — 20 million
FB Year 4 (Aug. 1, 2007) — 30 million
FB Year 4 (Dec. 31, 2007) — 50+ million
FB Year 5 (June 6, 2008) — 100+ million
FB Year 5 (Dec. 31, 2008) — 200+ million
2. Facebook’s valuation will be around $500 per user. I base this on the multiple sources of revenue that will flow to them from:
2a. targetted brand advertising — their Yahoo play
2b. keyword driven search advertising — their Google play
2c. P2P e-commerce transactions — their eBay play
2d. B2C e-commerce transactions — their Amazon play
2e. Industry Alliance transactions — their Microsoft vs. Google play
3. Facebook is the world’s FIRST social operating system and the world only needs ONE such open platform. Therefore, the market power of the dominant player in this upcoming major OS transition will be HUGE. In my opinion, facebook which started in 2004 and is becoming the “first mainstream Social Operating System” is similar to Microsoft Windows which started in 1984 and became the “first mainstream Graphical Operating System.” Just like with Windows, whoever controls the OS and whoever controls the dominant applications for that OS will make HUGE SUMS of MONEY over the next 20 years.
WRT your comparison to Google’s $160 billion value, remember that Google makes their money by monetizing people as they leave their site. Contrast this with Facebook’s multiple sources of revenue which are mostly tied to people staying within Facebook’s environment. Everything big and important (but slightly broken) about the current internet has a chance to be re-invented and re-interpreted inside of Facebook as an application with the added value and power of an ever-growing social graph of connected users.
For example, you can already see how facebook has dramatically improved e-mail by offering a constantly updated global address book where everybody you care about can easily find you and by creating an environment that effectively kills SPAM because no anonymous person or marketing company can bother you more than once.
You can read the details about my views in the full post in my Official Altura Ventures & AppFactory Facebook Investment Fund Group (see http://www.facebook.com/group.php?gid=2392191727) and my comments to those who asked questions about this $100 Billion valuation (see http://www.facebook.com/topic.php?uid=2392191727&topic=2793).
Thanks,
Lee Lorenzen
(c) 2007 Altura Ventures LLC
August 30th, 2007 at 11:28 am
[…] Lee Lorenzen’s argument that Facebook is worth $100 billion without much thought. Yesteray, Lee posted his response on my blog. I don’t want to get into a mud slinging fight but I thought I would take the […]
August 30th, 2007 at 3:52 pm
[…] been thinking and reading a lot about the economies of Facebook - not whether it’s worth $100-billion or whether the company will do an IPO rather than accept a zillionaire dollar takeover […]
August 30th, 2007 at 8:25 pm
A comment on the growth in the older demographic - When will advertisers offer a range of more mature looking avatars? It’s one thing that puts me off Yahoo! and I see ads on Facebook for very young images that have no appeal for me and other cashed-up seniors.