What is Facebook Worth?

Working in a SEO company in Sydney it’s always interesting to see how online properties prosper and sometimes explode. There is no better example of this than Facebook. With Facebook about to go public, with pre IPO valuations of $100 billion USD, it’s interesting to see if this number is accurate.

The first way is to look at the private market or trades that have occurred on Facebook stock as it’s still a private company. On the trading platform SharesPost, 150,000 Facebook shares sold for $44/share which actually puts the company value at over $103 billion. Now, is this just hype as the Facebook brand carries so much in weight in the media or Facebook actually worth this ridiculous amount?

Arguments from online experts include the assumptions that Facebook is not overvalued because:

• It is an established player with 800 to 900 million users
• It has won the social war and controls the social media market
• It’s more mature than the .com companies that existed in the 2000 bubble and so is the internet
• It's users are loyal and therefore willing to throw advertising dollars at the company

However there are opponents on the other side of the coin making some strong and valid arguments on why the $100 billion valuation is just too good to be true. Counter arguments to the high Facebook valuation include:

• Loss of its largest virtual goods revenue generator, Zynga
  • Facebook earned over $500 million USD last year in virtual product sales, such as gaming points and credits.  It’s largest revenue generator in this area is a company called Zynga who has already announced plans to launch its own gaming sites.
• Outside competition
  • Twitter, Google+ and LinkedIn are also growing rapidly. The more time users spend on these social sites the less time they spend on Facebook.  If Google can get to a critical mass of about 250 million users, it can really do some damage as they can incorporate their powerful search engine into their network as well as their other properties including YouTube.
• Mobile incompetence
• As every owner of the Facebook app can attest to, its usability is best described as “painful”.  Despite 425 million users Facebook has yet to perfect the interface let alone generate any meaningful mobile revenue from it. 

So what’s the answer?  Well to be honest I don’t know that there is one.  The main reasons are that Wall Street likes hype and is driven by it.  The world’s largest investment banks are behind this IPO and they make their money by the stock coming off the launching pad and skyrocketing in the short term.  The long term price is none of their concern as they have already exited their positions and it’s going to take a few months if not years when the true value of Facebook is known.  The other reason that this is unknown is that there is no comparison. Facebook is one of a kind when it comes to companies going public.  Many people are comparing it to the Google IPO in August 2004, but other than both companies being internet based they are vastly different business models.  Even their advertising revenue is going to be earned in much different ways.  Google sells advertising by people tapping into the Search market (AdWords Management) while Facebook’s advertising is based on knowing everything about every user and tailoring ads to their demographic.

One thing that is for certain is that it’s going to be fun to see what happens.